FAR CPA Exam, CPA GLEIM PRACTICE 1 FAR, FAR chapter 1 Framework, Overview and Concepts MCQ, FAR - 1, FAR REview, FAR - final review
According the the FASB's conceptual framework, an entity's revenue may result from a(n)
Decrease in a liability from primary operations
Internally developed intangible assets
Expensed. (US GAAP) does not allow for the capitalization of R and D - trademarks, goodwill from advertising, cost of developing, maintaining, or restoring goodwill
capitalized
Extraordinary repairs on equipment are...
Costs that can be reasonably associated with specific revenues but not with specific products should be
Expensed in the period in which the related revenue is recognized
40 days- large accelerated and accelerated 45 days- all other registrants
Filing deadline for the 10-Q (filed quarterly)
What is an 8-K?
Filing for special circumstances that happen such as: change in auditor, acquisitions, bankruptcy, the resignation of directors, or changes in the fiscal year
Largo Corporation prepares its financial statements in accordance with IFRS. Which of the following items is required disclosure on the income statement? Revenues, cost of goods sold, and advertising expense. Finance costs, tax expense, and income. Operating expenses, nonoperating expenses, and extraordinary items Gross profit, operating profits, and net profits.
Finance costs, tax expense, and income. the minimum required disclosures on the income statement include income, finance costs, share of profits and losses using the equity method, tax expense, discontinued operations, profit or loss, noncontrolling interests in profits and losses, and the net profit (loss) attributable to equity holders of the parent.
Which of the following is responsible for fund raising for entire operations involving the IASB? IFRS Interpretations Committee. IFRS Advisory Council. IFRS Foundation. Standard Advisory Council
IFRS Foundation.
statement of activities
IS reports revs and exp, gains and losses. - change in total net assets - change in net assets without donor restrictions - change in net assets with donor restrictions satisfying the restriction: Dr. satsifaction of program restriction - donor restrictions Cr. satisfaction of program restriction w/o donor restrictions Use of the resources: Dr. program exp Cr. program rev.
Proprietary funds: Internal service & enterprise
ISF: other depts fund the operations by paying fees - they are the customers. all internal. - central printing, garage, janitorial, insurance, computer processing, repair. full accrual Cash interfund transfer contribution of asset capital asset contribution long term payable to another fund: Cash Due to other fund BS: Net position: RUN Net investment in capital asset R restricted for debt service U unrestricted.
Calculation of ITE for an interim period
ITE: [total NI for periods * expected rate for entire year] - Q 1 ITE already booked = Q2 ITE
Which of the following must be included in a summary of significant accounting policies in the notes to the financial statements?
Revenue recognition policies
Non-monetary exchanges that have commercial substance
ex) trading services for inventory commercial substance = change in future cash flows = FV approach with entire G/L recognized
no goodwill or bonuses are recorded
exact method for creation of a new partnership
exchange transaction vs non exchange
exchange is a reciprocal transfer in which each party receives and sacrifices something of approximately equal value. a non exchange transaction involves giving/ receiving value without receiving equal value in return.
contributions of services that do not enhance nonfinancial assets are recognized only SOME of the time
expense contributions S specialized skills are required and possessed by the donor O otherwise needed by the organization M measureable E easily (at fair value)
Treatment of incremental costs to obtain a contract
expense if incurred regardless of contract creation; costs to fulfill a contract are capitalized if they directly relate, generate/enhance assets, AND are expected to be recovered
How is the maintaining, developing, or restoring of goodwill treated?
expensed
GAAP treatment for computer software for sale or internal use
expensed until technological feasibility is established, capitalization until end of preliminary project stage (depreciate to R&D expense); product costs = inventory If for sale = depreciate over greater of SL or % of revenue basis If for internal use = SL basis Can capitalize interest cost to inventory
FOB shipping point
freight-in; ownership passes when shipped (given to the carrier); part of COGS once put into truck
FOB destination point
freight-out; ownership passes once delivered; part of seller's inventory until then; selling expense
fv of asset transferred - NBV of asset transferred
how do you compute the ordinary gain/loss on the asset for the debtor in a troubled debt restructuring
cost - salvage / estimated units or hours
how do you find the rate per unit (or hour worked) using the units of production depreciation method
outstanding common equity of $700 million or more
how is a large accelerated filer defined
outstanding common equity of $75 million-$700 million
how is an accelerated filer defined
inventory
how is research and development costs recorded when it's performed on the behalf of others
capitalize
how is research and development costs treated when it has an alternative or future use
the present value is recorded as an intangible asset on the balance sheet and amortized
how is the initial franchise fee recorded
restated to fair value and gain/loss should be recognized in income
how should property dividends be treated on the date of declaration
capitalize
how should the development costs be treated from technological feasibility through the start of selling activity
expense
how should the development costs be treated from the concept to technological feasibility
beginning inventory + purchases - ending inventory
how to find cost of goods sold using the periodic inventory system
Identify the contract w/ customer
identifiable, enforceable rights and obligations payment terms, commercial substance future cash flows are expected probable that entity will collect the money - if done in good faith than have to wait for the contract to record Cash Unearned sales revenue
lease classification of a capital lease (operating or finance)
lessee: operating or finance Lessor: operating, sales type, direct financing Under IFRS: only use finance for lessee
FV hierarchy
level 1 = quoted market prices level 2 = directly or indirectly observable (quoted market prices of similar items) level 3 = unobservable (judgement = income, cost, or market approaches)
Fundamental qualitative characteristics of information
relevant (predict and confirm your material value) and reliable/faithful representation (completely neutral is free form error)
Unconditional contribution / pledge
support recognized upon receipt to be received over time = NA w/ DR and receivable recorded at PV (interest is recorded over time as contribution revenue)
Custodial fund
tax collection funds, clearance funds, special assessments Revenue: normally expected to be held for 3 months or less. - property taxes collected for other governments and than distributed to other governments. usually held for 3 months or less. clearance: used to accumulate a variety of revs from diff sources and apportionment them to various operating funds: cash conduit arrangements with no monitoring or adminstrative involement. special assessments:
permanent differences
tax-exempt interest on municipal bonds, penalty expense, or life insurance premiums are considered
Derived Tax Revenues
taxes imposed on or derived from exchange transactions, such as commercial sales (sales taxes), taxpayer income (income taxes), etc.
operating lease
the BS will reflect a right of use (ROU) asset and lease liab and both will be amortized over the life of the lease using the effective interest method. the lease expense will be recognized over the life of the lease. any lease hold improvements will be depreciated over the remaining life of the lease unless they are for sure going to extend the lease. ROU asset Lease liability future entry lease expense cash/lease liab. lease liab. accum amortization/ROU asset
A fair value measurement assumes:
the HIGHEST & BEST USE of the asset that is physically possible, legally permissible, and financially feasible.
accrual of benefits other than pensions
the obligation is attributable to employees services already rendered. the employees rights accumulate or vest reasonable estimated
what is the only difference between formats in direct & indirect method for the statement of cash flows
the only difference between the direct & indirect method is in the operating section... direct =operating cash flows indirect= reconciliation
Unearned Revenue 12/31/X1 $ - 0 - Unearned Revenue 12/31/X2 25,000 Increase - X2 $25,000
The increase occurred as a result of ABC making one or more of the following entries: DR: Cash CR: Unearned Revenues
Fiduciary Trust Funds
Trust Accounts Full accrual accounting Economic resources measurement focus C custodial funds I Investment Trust funds P private purpose trust funds POE Pension and Other Employee Benefit Trust Funds Statement of Fiduciary Net Position Carry everything Same as above Statement of Changes in Fiduciary Net Position Additions - Deductions = Change in Net position
the basic financial statements requirements for S-1 part 1:
Two years of balance sheets; Three years of income statements, statements of cash flow and statements of shareholders' equity; The financial statements must be audited; Prior statements are presented on a comparative basis; The SEC requires five years of selected financial information.
G- General fund R- Special Revenue Fund S- Debt Service Fund P- Capital projects fund P- Permanent Fund
Types of governmental funds
characteristics of info for gov financial reports
U understandability R reliability M make a difference Relevance (most difficult) In Tmeliness Consistency year over year E Entity to entity comparability
Valuation of Intangible Assets
US GAAP - finite life intangibles are reported at cost less amortization and impairment. Indefinite life intangibles are reported at cost less impairment IFRS - cost model: reported at cost adjusted for amortization and impairment.. Revaluation: initially recognized at cost and then revalued to FV:: revaluation losses = IS and gains = OCI4rtg
Lower of cost or market
US GAAP : LIFO or retail inventory IFRS: do not use to determine market use the middle value of the three below; Market value GR is current replacement - Replacement cost - Market Ceiling = NRV - Market Floor = NRV - Profit
other comprehensive income
US GAAP requires that changes in the funded status of a pension plan due to prior service cost and pension gains and losses be reported in...
What is emphasized in the IFRS risks and uncertainties footnote?
Uncertainty having to do with estimates present in the financial statements
Earning
Under IFRS 9 using the expected credit loss model, assets that are measured at amortized cost recognize impairment in
Other comprehensive Income
Under IFRS 9 using the expected credit loss model, assets that are measured at fair value through OCI recognize impairment in
always recognized
Under IFRS, exchanges of dissimilar assets the gain/loss is...
no gain recognized, loss is recognized
Under IFRS, exchanges of similar assets what is/is not recognized
CFO or CFF
Under US GAAP, dividends paid is reported as CFF. However, in IFRS it can be reported as...
CFO or CFI
Under US GAAP, dividends received is reported as CFO. However, in IFRS it can be reported as...
CFO or CFF
Under US GAAP, interest paid is reported as CFO. However, in IFRS it can be reported as...
CFO or CFI
Under US GAAP, interest received is reported as CFO. However, in IFRS it can be reported as...
CFO, CFI, or CFF
Under US GAAP, taxes paid is reported as CFO. However, in IFRS it can be reported as...
When does capitalization of construction period interest begin?
[DAPII] (1) building decision made (2) necessary activities in process (3) interest incurred
NFP SoCF financing activities
[DR fund for LT purposes, normal financing activites] donor restricted contributions and cash received with DR for purchase of LT assets, receipts/disbursements associated with borrowing, receipts of dividend and interest that is restricted to reinvestment
Components of income from discontinued operations
[IDO] = (1) impairment, (2) income/loss from actual operations during the year, (3) gain/loss on disposal; all reported NET OF TAX
Revenue recognition steps
[ISTAR] (1) identify contract w/ customer (2) identify separate PO ( doesn't customize or modify other goods/services) (3) determine transaction price (4) allocate transaction price to separate POs (5) recognize revenue when/as entity performs the POs
Components of periodic pension expense
[SIR AGE] + service cost + interest cost - expected return on PA + amortization of PSC +/- amortization of loss / gain + existing obligation (asset)
Proprietary fund SoCF - capital financing activities
[capital receipts of assets and revenue bonds] capital debt and interest expense, capital contributions/grants, capital asset purchases, capital debt principal/interest, capital asset special assessments, revenue bonds, and construction costs for capital asset improvements
Proprietary fund SoCF - investing activities
[catch all for investments and equity trans] purchase of investments, interest/dividend received, loans and interest income to others, and equity transactions
NFP SoCF investing activities
[investments and proceeds restricted for assets] proceeds from art, investment in LT assets, sale of previously received assets with DR proceeds for equipment investment
Lessor accounting Sales type lease
all the risks and rewards lessee gains control of the underlying asset. the lessor will derocognize the asset and recognize a net investment in the lease, as well as profit or loss. Residual asset (if necessary) Hunk of Junk lease rec. fixed asset gain or dr for loss
The summary of significant accounting policies should disclose the
basis of profit recognition on long term construction contracts
S Identify the separate performance obligations
be able to separate what is being performed. must be distinct and independent items (sell them separate, etc.) as the parts are done can rec. rev. Unearned Rev
total liabilities / total equity
debt to equity ratio
Lower of cost and NRV
IFRS = always use US GAAP = FIFO/WA
special rev fund and permanent fund do not use
encumbrances
capitalized at cost
how are purchased intangible assets recorded
gross patient service revenue - charitable services
patient service revenue =
ending balance of the allowance for the year
percent of A/R at year-end allowance method equals (% x ending A/R=)
bad debt expense for the year
percent of sales allowance method equals (% x sales =)
cost depletion (GAAP)
percentage depletion NOT GAAP / tax only
capitalized amount x current gross revenue for the period / total projected revenue for product
percentage of revenue method of capitalizing development costs
To be relevant, financial information should have which of the following?
Confirmatory value
What is the underlying concept governing the Generally Accepted Accounting Principles pertaining to recording gain contingencies?
Conservatism
What suppresses positive information under conditions of uncertainty but requires the reporting of negative information when the negative outcome is likely.
Conservatism
Disclosure of information about significant concentrations of credit risk is required for
Most financial instruments
Amortization of PSC and actuarial G/L from OCI
PSC = amortized over average remaining life G/L = corridor approach = excess of G/L over the 10% of the higher of beginning PBO or PA is amortized over the average remaining service life
A material overstatement in ending inventory was discovered after the year-end financial statements of a company were issued to the public. What effect did this error have on the year-end financial statements? Current assets Gross profit
Over; Over
Before 2001, Droit Co. used the cash basis of accounting. As of December 31, 2001, Droit changed to the accrual basis. Droit cannot determine the beginning balance of supplies inventory. What is the effect of Droit's inability to determine beginning supplies inventory on its 2001 accrual basis net income and December 31, 2001, accrual basis owners' equity? 2001 net income 12/31/01 owner's equity No effect No effect No effect Overstated Overstated No effect Overstated Overstated
Overstated No effect
How does an overstatement in EI effect NI; what about BI?
Overstatement in EI = overstatement in NI Overstatement in BI = understatement in NI
issued stock dividend does not affect
Owners Equity
OCI include
P Pension adjustments U unrealized gain/loss on avail. for sale securitys F foreign translation amounts I instrument specified credit risk E effective portion of cash flow hedges Revaluation Surplus (IFRS only)
PBO vs ABO
PBO = PV of all benefits ABO = PV using past and current salary
Calculation of dollar value LIFO price index
PI = CY ending inventory / BY ending inventory
Which of the following information should be included in Melay, Inc.'s current year summary of significant accounting policies?
PPE is recorded at cost with depreciation computed principally by the straight-line method
All of the following are defined as elements of an income statement except
Shareholder's equity
Owners' Equity Ratio =
Shareholders' Equity / Total Assets
Gains (remote, probable, etc)
Should not be recognized until the gain contingency is completed! if the amount is probable, it should be disclosed in the notes.0. 3+6
Fiduciary fund FS
SoFNP (A+DO-L-DI = FNP) - entire balance is restricted for purpose of fiduciary fund SoCFNP (additions and deductions)
Proprietary fund FS
SoNP (A+DO-L-DI=NP) = [RUN] SoRE&FB (revenue and expenses based on operating vs non-operating) SoCF (operating, noncapital financing, capital financing, investing)
what is an example of an observable input
bank prime rate; default rate on loans
A allocate the transaction price to separate items
based on the satasifaction of each item. allocate on a pro rata basis. if a bonus relates to just one item than allocate it to that
net income-preferred dividends/weighted average common shares outstanding
basic EPS formula
FA constructed by a company
capitalize DM and DL repairs that add value overhead construction period interest GR: interest is expenses as incurred. interest can be capitalized based on WA of accumulated expenditures. interest during construction. unintentional delay: interest can still be capitalized
Capitalize vs. Expense
capitalize: additions, improvements (betterment), replacements, extraordinary repair (increase life or usefulness) expense: ordinary repairs
purchased intangible assets
capitalized at cost include legal and registration fees incurred in cost
income from investments in debt securities
carried at FV: TS or AFS Cash Interest income - cash flow: operating
Calculation of earned gross profit
cash collections * GP % = earned gross profit; will calculate for collections from separate years and then add together to determine earned gross profit for that year
days sales in accounts receivable + days in inventory - days of payables outstanding
cash conversion cycle
Total ITE
current ITE (ITP) + deferred ITE (net of change to DTA/DTL)
current assets / current liabilities
current ratio
On December 30, 2005, Vida Co. had cash of $200,000, a current ratio of 1.5:1 and a quick ratio of .5:1. On December 31, 2005, all cash was used to reduce accounts payable. How did these cash payments affect the ratios? Current ratio Quick ratio Increased Decreased Increased No effect Decreased Increased Decreased No effect
current ratio=increase quick ratio=decrease
Which fund is used when governmental unit it NOT obligated for debt, receivables, and debt service transactions with special assessments
custodial fund
Regulation S-X governs the
form and content of financial statements and financial statement disclosures. ex. I/S; B/S
GAAP = assets at fair value, liabilities at present value IFRS = NBV of assets
formation of a partnership, contributions are recorded as:
S- Current service cost I- Interest cost R- less: return on plan assets A- Amortization of prior service cost G- Gains and (losses) E- Amortization of existing net obligation or net asset
formula for net periodic pension cost
accumulated postretirement benefit obligation - fv of plan assets / 20 years OR average remaining service period (whichever is greater)
formula to find the amortization or expense of the transition obligation
beginning fair value of plan asset + contributions + actual return on plan assets - benefits paid to retirees
formula to find the ending value of plan assets
Beg PBO + service cost + Interest cost + Prior service cost + Actuarial losses - actuarial gains - Benefits paid to retirees
formula used to calculate the ending projected benefit obligation
Pass-through contributions for NFP accounting when financially interrelated
recipient = asset and contribution revenue; expense when distributed beneficiary = interest in net assets and change in interest in recipient net assets; when change in value = beneficial interest and contribution revenue
Interfund transfers in gov't
reciprocal = treated as revenue/expense or due to/from non-reciprocal = OFU/S reimbursements = not displayed
Interfund activity
reciprocal interfund activity: interfund loans, interfund services provided and used nonreciprocal interfund activity: interfund transfers, interfund reimbursements
justification for the method of determining periodic deferred tax expense is based on the concept of
recognition of assets and liabs.
Contracts that transfer ownership for governmental lessor (governmental fund)
recognition of lease receivable, revenue for first principal payment, and deferred inflow for remaining; revenue recognized over time in a systematic and rational matter as payments are received (decrease to deferred inflow, increase to revenue)
Rule of Conservatism
recognize loss no matter what
Right of return with revenue recognition
recognize revenue for the amount expected to receive; refund liability and asset for expected recovery of inventory
Bill and hold agreements
recognize revenue if (1) substantive reason, (2) entity cannot redirect the product, and (3) it's separately identified in warehouse
nonmonetary exchange lacking commerical substance
recognize the gain in an amount determined by the ratio of cash received to total consideration
Termination benefits are exit costs that are recognized when they are ___________
recognized
foreign currency transactions
transactions denominated in a currency other than that used for financial reporting
In determining the fair value of an asset in the most advantageous market, the market based exit price should be adjusted for
transportation cost... NOT transaction cost
Proprietary funds
treat like a customer / not like a citizen full accrual basis economic resources measurement focus SE CIPPOE Accrual Record Economic S internal service funds E Enterprise funds - if financed by debt - price policies Carry everything Statement of Net Position All assets + DO - all liab + DI = Net position Not Fund Balance Statement of rev, exp, and changes in fund net position = same ONLY ONE WITH STATEMENT OF CASH FLOWS
Treatment for factoring AR w/o recourse
treated as a sale of AR; record cash, decrease AR, due from factor (for security %) and plug G/L
Treatment for pledging AR
treated as collateral for a loan; note disclosure required only
the difference between the expected and actual return on plan assets and the changes in actuarial assumptions
two sources of gains and losses in net periodic pension cost formula
C- custodial funds I- investment trust funds P- Private purpose trust funds POE- pension (and other employee benefit) trust funds
types of fiduciary funds
operating and finance lease
types of leases for the lessee
operating, sales-type finance lease, or direct financing lease
types of leases for the lessor
S- Internal service funds E- enterprise funds
types of proprietary funds
VIE under a private company
under U.S. Gaap, a private company may elect to not consolidate a lessor entity that would otherwise be consolidated under the existing VIE if the four criteria are met: 1. the lessee and the lessor are under common control 2. the lessee has a leasing arrangement with the lessor 3. substantially all activities between the lessee and lessor are related to leasing activities 4. if the lessee explicitly guarantees or collateralizes any obligation of the lessor, then the principal amount of the obligation does not exceed the value of the asset leased by the private company from the lessor.
fair value at revaluation date - subsequent A/D - subsequent impairment
under the revaluation model for IFRS, fixed assets are recorded at:
calculation of depletion
unit depletion rate * number of units extracted unit rate = depletion base / estimated recoverable units
depletion base / estimated recoverable units
unit depletion rate =
other comprehensive income
unrealized gain/loss on available for sale debt securities are recorded in
pension expense formula for unrecognized G/L
unrecognized G/L - (10% of the greater of PBO or FMV of plan assets at the beg of the year) = excess / average remaining service life = minimum recognized amount to be reported
Examples of extraordinary items
unusual and infrequent - environmental disaster created by chemical spill - damage in a community as a result of an attack
Most advantageous market
use when principal market is unknown; maximizes the price after transaction costs
Percentage of completion method
use when: reasonably estimate profitability and measure progress) losses: recognized at 100% in year of discovery expenditures: dr. CIP and cr. AP billings: dr. AR and cr. progress billings GP each period: dr. CIP, cr. current GP
Profit margin x asset turnover
"DuPont" Return on Assets
Enhancing qualitative characteristics of information
"compare and verify in time to understand"
According to the IASB's Framework, recognition is
"the process of incorporating in the Balance Sheet or Income Statement an item that meets the definition of an element and satisfies the criteria for recognition."
additional shares outstanding
# of shares - ((number of shares * exercise price) / average market price)
In its financial statements, Hila Co. discloses supplemental information on the effects of changing prices. Hila computed the increase in current cost of inventory as follows: Increase in current cost (nominal dollars) $15,000 Increase in current cost (constant dollars) $12,000 What amount should Hila disclose as the inflation component of the increase in current cost of inventories? $ 3,000 $12,000 $15,000 $27,000
$ 3,000 The increase in current cost (nominal dollars) of $15,000 is the total increase in current cost, including any increase caused by inflation. The effect of changes in the general price level is not separated from the effect of changes in specific value. The increase in current cost (constant dollars) of $12,000 is the increase in current cost after eliminating any increase caused by inflation. Therefore, the inflation component of the increase in current cost of inventories is $3,000 ($15,000 − $12,000).
Direct method of CFO
$$ received = accrual sales - inc AR + inc unearned $$ paid = accrual exp. - inc pay + inc prepaid also included: dividends received, interest paid, interest received, income taxes paid, purchase and sales of T/S (NOT AFS = CFI)
Howard Co. had the following first-year amounts for a $7,000,000 construction contract: Actual costs $2,000,000 Estimated costs to complete 6,000,000 Progress billings 1,800,000 Cash collected 1,500,000 What gross profit (loss) is recognized using the input method based on costs incurred to measure progress toward completion of the contract?
$(1,000,000)
Ali Co. bought a machine on January 1, Year 1, for $24,000, at which time it had an estimated useful life of 8 years, with no residual value. Straight-line depreciation is used for all of Ali's depreciable assets. On January 1, Year 3, the machine's estimated useful life was determined to be only 6 years from the acquisition date. Accordingly, the appropriate accounting change was made in Year 3. The direct effects of this change were limited to the effect on depreciation and the related provision for income tax. Ali's income tax rate was 40% in all the affected years. In Ali's Year 3 financial statements, how much should be reported as the cumulative effect on prior years because of the change in the estimated useful life of the machine?
$0
In early January of Year 6, Off-Line Co. changed its method of accounting for demo costs from writing off the costs over 2 years to expensing the costs immediately. Off-Line made the change in recognition that an increasing number of demos placed with potential customers did not result in sales. Off-Line had deferred demo costs of $500,000 at December 31, Year 5, of which $300,000 were to be written off in Year 6 and the remainder in Year 7. Off-Line's income tax rate is 30%. In its Year 6 statement of retained earnings, what amount should Off-Line report as a retrospective adjustment of its January 1, Year 6, retained earnings?
$0
On December 1, Year 1, Shine Co. agreed to sell an operating segment on March 1, Year 2. As a result, the segment qualified as a component of an entity classified as held for sale. This operating segment represents a major geographical area. Throughout Year 1, the segment had operating losses that were expected to continue until its disposition. However, the gain on disposal was expected to exceed the operating segment's total operating losses in Year 1 and Year 2. The amount of estimated net gain from disposal recognized in discontinued operations in Year 1 equals
$0
On January 1, Year 1, Warren Co. purchased a $600,000 machine, with a 5-year useful life and no salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The machine's carrying amount was $240,000 on December 31, Year 2. On January 1, Year 3, Warren changed to the straight-line method for financial statement purposes only. Warren had planned the change in accordance with a consistently applied policy. Warren's income tax rate is 30%. In its Year 3 financial statements, what amount should Warren report as the cumulative effect of this change on the beginning balance of retained earnings if it issues single-period statements only?
$0
On January 1, Year 7, Colorado Corp. purchased a machine having an estimated useful life of 8 years and no salvage value. The machine was depreciated by the double-declining-balance (DDB) method for both financial statement and income tax reporting. On January 1, Year 9, Colorado justifiably changed to the straight-line method for both financial statement and income tax reporting. Accumulated depreciation at December 31, Year 8, was $525,000. If the straight-line method had been used, the accumulated depreciation at December 31, Year 8, would have been $300,000. The retroactive adjustment to the accumulated depreciation account on January 1, Year 9, as a result of the change in depreciation method is
$0
The Year 1 financial statements of Bice Company reported net income for the year ended December 31, Year 1, of $2 million. On July 1, Year 2, subsequent to the issuance of the Year 1 financial statements, Bice changed from an accounting principle that is not generally accepted to one that is generally accepted. If the generally accepted accounting principle had been used in Year 1, net income for the year ended December 31, Year 1, would have been decreased by $1 million. On August 1, Year 2, Bice discovered a mathematical error relating to its Year 1 financial statements. If this error had been discovered in Year 1, net income for the year ended December 31, Year 1, would have been increased by $500,000. What amount, if any, should be included in net income for the year ended December 31, Year 2, because of the items noted above?
$0
On May 1, Year 1, Carty Corp. properly classified as held for sale an asset group that qualified as a component of the entity. Furthermore, the transaction met the criteria for reporting the results of operations of the component in discontinued operations. The component's operating loss was $100,000 for the period from May 1, Year 1, to the September 1, Year 1, disposal date, without regard to a $480,000 loss on disposal and a $300,000 writedown to fair value minus cost to sell of the assets to be sold. A $120,000 operating loss was incurred from January 1, Year 1, through April 30, Year 1. Before income taxes, what amount should be reported in Carty's income statement for the year ended December 31, Year 1, as the loss from discontinued operations?
$1,000,000
Hansen Construction, Inc., has consistently used the input method based on costs incurred to recognize revenue over time. During Year 1, Hansen started work on a $3 million fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, Year 1: Costs incurred $ 930,000 Estimated costs to complete 2,170,000 Amounts billed 1,100,000 Collections 700,000 How much loss should Hansen have recognized in Year 1?
$100,000
The following data were available from Mith Co.'s records on December 31: Finished goods inventory, 1/1 $120,000 Finished goods inventory, 12/31 110,000 Cost of goods manufactured 520,000 Loss on sale of plant equipment 50,000 The cost of goods sold for the year was
$530,000 (520,000 + 120000 - 110000)
Dell Company's inventory at December 31, Year 1, was $1.2 million based on a physical count of goods priced at cost, and before any necessary year-end adjustments relating to the following: Included in the physical count were goods billed to a customer FOB shipping point on December 30, Year 1. These goods had a cost of $25,000 and were picked up by the carrier on January 7, Year 2. Goods shipped FOB shipping point on December 28, Year 1, from a vendor to Dell were received on January 4, Year 2. The invoice cost was $60,000. What amount should Dell report as inventory in its December 31, Year 1, balance sheet?
$1,260,000
Herc Co.'s inventory at December 31, Year 1, was $1.5 million based on a physical count priced at cost, and before any necessary adjustment for the following: Merchandise costing $90,000 was shipped FOB shipping point from a vendor on December 30, Year 1, and was received and recorded on January 5, Year 2. Goods in the shipping area were excluded from inventory although shipment was not made until January 4, Year 2. The goods, billed to the customer FOB shipping point on December 30, Year 1, had a cost of $120,000. What amount should Herc report as inventory in its December 31, Year 1, balance sheet?
$1,710,000
On January 1, Year 1, Newport Corp. purchased a machine for $100,000. The machine was depreciated using the straight-line method over a 10-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Newport's Year 1 financial statements, resulting in a $10,000 overstatement of the book value of the machine on December 31, Year 1. The oversight was discovered during the preparation of Newport's Year 2 financial statements. What amount should Newport report for depreciation expense on the machine in the Year 2 financial statements?
$10,000
On January 2, Year 4, Raft Corp. discovered that it had incorrectly expensed a $210,000 machine purchased on January 2, Year 1. Raft estimated the machine's original useful life to be 10 years and its salvage value at $10,000. Raft uses the straight-line method of depreciation and is subject to a 30% tax rate. In its December 31, Year 4, financial statements, what amount should Raft report as a prior period adjustment?
$105,000
The following information pertained to Azur Co. for the year:Price of goods purchased$102,800Price discounts10,280Freight-in15,420Freight-out5,140Beginning inventory30,840Ending inventory20,560What amount should Azur report as cost of goods sold for the year?
$118,200
The Statement of Changes in Equity shows an increase in the common stock account of $2,000 and an increase in the additional paid‐in capital account of $10,000. If the common stock has a par value of $2, and the only transactions affecting these accounts were these issues of common stock, what was the average issue price of the common stock during the year? $2 $5 $10 $12
$12 $2000 increase/ $2 par value= 1000 shares $2000 increase + $10000 Additional PIC= $12000 $12000/1000 shares= $12 average per share
Vane Co.'s trial balance of income statement accounts for the year ended December 31, year 2, included the following: Debit Credit Sales $575,000 Cost of sales $240,000 Administrative expenses 70,000 Loss on sale of equipment 10,000 Sales commissions 50,000 Interest revenue 25,000 Freight out 15,000 Loss on early retirement of long‐term 
 debt 20,000 Uncollectible accounts expense 15,000 Totals $ 420,000 $ 600,000 Other information: Finished goods inventory: January 1, year 2 $400,000 December 31, year 2 360,000 Vane's income tax rate is 30%. In Vane's year 2 multiple‐step income statement, What amount should Vane report as income after in come taxes from continuing operations? $126,000 $129,500 $140,000 $147,000
$126,000 All of the revenues, gains, expenses, and losses given in this problem are components of income from continuing operations. Income before income taxes is $180,000, as computed below. Revenues ($575,000 + $25,000) $600,000 Expenses and losses ($240,000 + $70,000 + $10,000 + $50,000 + $15,000 + $15,000 + $20,000) 420,000 Income before income taxes $ 180,000 To compute income from continuing operations (after taxes), income taxes ($180,000 × 30% = $54,000) must also be deducted ($180,000 − $54,000 = $126,000).
The following information applies to Nichola Manufacturing Company, which has a 6-month operating cycle: Cash sales $100,000 Credit sales during the sixth month with net 30 days terms 150,000 Credit sale during the fifth month with special terms of net 9 months 10,000 Interest earned and accrued on an investment that matures during month 3 of the next cycle 2,000 The total of Nichola's trade accounts receivable at the end of the current cycle is
$160,000
Lewis Company was formed on January 1, year 1. Selected balances from the historical cost balance sheet at December 31, year 2, were as follows: Land (purchased in year 1) $120,000 Investment in nonconvertible bonds (pur‐
 chased in year 1, and expected to be held to 
 maturity) 60,000 Long‐term debt 80,000 The average Consumer Price Index was 100 for year 1, and 110 for year 2. In a supplementary constant dollar balance sheet (adjusted for changing prices) at December 31, year 2, these selected account balances should be shown at Land Investment Long‐term debt $120,000 $60,000 $88,000 $120,000 $66,000 $88,000 $132,000 $60,000 $80,000 $132,000 $66,000 $80,000
$132,000 $60,000 $80,000 In a constant dollar balance sheet, nonmonetary items are restated to the current price level, while monetary items are not restated because they are already stated in current dollars. The investment in bonds and the long‐term debt are monetary items since their amounts are fixed by contract in terms of number of dollars. Therefore, these items are not restated and are reported at $60,000 and $80,000, respectively. The land, however, is a nonmonetary item and its cost ($120,000) must be restated to current dollars by using the TO/FROM ratio (110/100), resulting in an adjusted amount of $132,000 ($120,000 × 110/100).
West Retailers purchased merchandise with a list price of $20,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable. West should record the cost of this merchandise as
$14,400
A company decided to sell an unprofitable major line of its business. The company can sell the entire operation for $800,000, and the buyer will assume all assets and liabilities of the operations. The tax rate is 30%. The assets and liabilities of the discontinued operation are as follows: Buildings $5,000,000 Accumulated depreciation 3,000,000 Mortgage on buildings 1,100,000 Inventory 500,000 Accounts payable 600,000 Accounts receivable 200,000 What is the after-tax net loss on the disposal of the division?
$140,000
Deck Co. had 120,000 shares of common stock outstanding at January 1. On July 1, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to calculate basic earnings per share?
$140,000
Loire Co., a calendar year-end firm, has used the FIFO method of inventory measurement since it began operations in Year 3. Loire changed to the weighted-average method for determining inventory costs at the beginning of Year 6. Justification for this change was that it better reflected inventory flow. The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:YearFIFOWeighted-Average3$ 90,000$108,0004156,000142,0005166,000150,000In its Year 6 financial statements, Loire included comparative statements for both Year 5 and Year 4. What amount should Loire report as inventory in its financial statements for the year ended December 31, Year 4, presented for comparative purposes?
$142,000
In Baer Food Co.'s Year 3 single-step income statement, the section titled Revenues consisted of the following: Net sales revenue $187,000 Discontinued operations: Income from operations of component unit (including gain on disposal of $21,600) 18,000 Income tax (6,000) Interest revenue 10,200 Gain on sale of equipment 4,700 Total revenues $213,900 In the revenues section of the Year 3 income statement, Baer Food should have reported total revenues of
$201,900 (213900 - 12000)
Frame Construction Company's contract requires the construction of a bridge in 3 years. The expected total cost of the bridge is $2,000,000, and Frame will receive $2,500,000 for the project. The actual costs incurred to complete the project were $500,000, $900,000, and $600,000, respectively, during each of the 3 years. Progress payments received were $600,000, $1,200,000, and $700,000, respectively. Frame uses the input method based on costs incurred to recognize revenue from a performance obligation satisfied over time. What amount of gross profit should Frame report during the last year of the project?
$150,000
Haft Construction Co. has consistently used the input method based on costs incurred to measure progress toward completion of the project. On January 10, Year 3, Haft began work on a $3 million construction contract. At the inception date, the estimated cost of construction was $2,250,000. The following data relate to the progress of the contract: Gross profit recognized at 12/31/Yr 3 $ 300,000 Costs incurred 1/10/Yr 3 through 12/31/Yr 4 1,800,000 Estimated cost to complete at 12/31/Yr 4 600,000 In its income statement for the year ended December 31, Year 4, what amount of gross profit should Haft report?
$150,000
Sackett Corporation had a beginning inventory of 10,000 units, which were purchased in the prior year as follows: Units Unit Price September 4,000 $2.00 October 4,000 $2.10 December 2,000 $2.30 In the current year, Sackett purchases an additional 12,000 units (7,000 in June at $2.50 and 5,000 in November at $2.70) and sells 16,000 units. Using the FIFO method, what is Sackett's ending inventory?
$16,000 ( 5000 @ 2,70 and 1000 @ 2.50)
A hotel enters into a contract with a customer to provide 10 rooms for 10 nights for $200 per room per night. In addition to the room price per night, the hotel collects a city occupancy tax of $7 per room per night. According to the hotel's promotion, each customer that purchases in total more than 50 room nights is entitled to a credit of $3,000 on the entire purchase. What is the total transaction price of the contract?
$17,000 (10 * 10 * 200) -3000)
Loire Co., a calendar year-end firm, has used the FIFO method of inventory measurement since it began operations in Year 3. Loire changed to the weighted-average method for determining inventory costs at the beginning of Year 6. Justification for this change was that it better reflected inventory flow. The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:YearFIFOWeighted-Average3$ 90,000$108,0004156,000142,0005166,000150,000In its Year 6 financial statements, Loire included comparative statements for both Year 5 and Year 4. What adjustment, before taxes, should Loire make retrospectively to the balance reported for retained earnings at the beginning of Year 4?
$18,000 Increase
In preparing its August 31 bank reconciliation, Apex Corp. has the following information available: Balance per bank statement, 8/31 $18,050 Deposit in transit, 8/31 3,250 Return of customer's check for insufficient funds, 8/31 600 Outstanding checks, 8/31 2,750 Bank service charges for August 100 At August 31, Apex's cash balance is
$18,550
A cash flow of $200,000 may be received by Lydia Nickels, Inc. in one year, two years, or three years, with probabilities of 20%, 50%, and 30%, respectively. The rate of interest on default risk‐free investments is 5%. The present value factors are PV of 1, at 5%, for 1 year is .95238 PV of 1, at 5%, for 2 years is .90703 PV of 1, at 5%, for 3 years is .86384 What is the expected present value of Lydia Nickels' cash flow (in whole dollars)? $181,406 $180,628 $ 90,703 $ 89,925
$180,628 The computation of expected present value using a single interest rate is as follows: PV of $200000 in 1 year at 5% $190,476 (200000*.95238) Probability 20% $38,095 PV of $200000 in 2 years at 5% $181,406 (200000*.90703) Probability 50% 90,703 PV of $200000 in 3 years at $172,768 (200000*.86384) 5% Probability 30% 51,830 $ 180,628
A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that it is probable that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month?
$190,000
Burr Company had the following account balances at December 31, Year 1: Cash in banks $2,250,000 Cash on hand 125,000 Cash legally restricted for additions to plant (expected to be disbursed in Year 2) 1,600,000 Cash in banks includes $600,000 of compensating balances related to short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In the current assets section of Burr's December 31, Year 1, balance sheet, total cash should be reported at
$2,375,000
On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40, and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment
$2,944
The following information was obtained from Smith Co.: Sales $275,000 Beginning inventory 30,000 Ending inventory 18,000 Smith's gross margin is 20%. What amount represents Smith purchases?
$208,000
Data pertaining to Pell Co.'s long-term construction jobs, which commenced during Year 1, are as follows:Project 1Project 2Contract price$420,000$300,000Costs incurred during Year 1240,000280,000Estimated costs to complete120,00040,000 Billed to customers during Year 1 150,000 270,000 Received from customers during Year 1 90,000 250,000 If Pell used the input method based on costs incurred to measure its progress toward completion of the project, what amount of gross profit (loss) would Pell report in its Year 1 income statement?
$20,000
The first audit of Rudd Corp.'s financial statements was made for the year ended December 31, Year 4. The auditor found that Rudd had purchased another company in January Year 3 and had recorded an intangible asset of $100,000 in connection with this purchase. The intangible asset had a useful life of only 5 years, and the pattern of the consumption of the economic benefits of the intangible asset is not reliably determinable. No amortization of the intangible asset had ever been recorded. For the December 31, Year 4, financial statements, Rudd should debit
$20,000 / $20,0000
Loire Co., a calendar year-end firm, has used the FIFO method of inventory measurement since it began operations in Year 3. Loire changed to the weighted-average method for determining inventory costs at the beginning of Year 6. Justification for this change was that it better reflected inventory flow. The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:YearFIFOWeighted-Average3$ 90,000$108,0004156,000142,0005166,000150,000In its Year 6 financial statements, Loire included comparative statements for both Year 5 and Year 4. By what amount should cost of sales be retrospectively adjusted for the year ended December 31, Year 5?
$2000 increase
A partial listing of a company's accounts is presented below: Revenues $80,000 Operating expenses 50,000 Foreign currency translation adjustment gain, net of tax 4,000 Income tax expense 10,000 What amount should the company report as net income?
$20000 (80,000 - 50,000 - 10,000)
The following is Gold Corp.'s June 30, Y6 Trial Balance: Cash Overdraft Cr. 10,000 A/R Net Dr. 35,000 Inventory Dr 58000 Prepaid Expenses dr 12,000 Land held for resale dr 100000 PPE net Dr 95000 A/P and accrued ex cr 32,000 Common stock cr 25000 Additional PIC cr 150,000 Retained earnings cr 83,000 Additional info: -Checks amounting to $30,000 were written to vendors and recorded on June 29, Y6, resulting in cash overdraft of $10,000. Checks were mailed on July 9, Y6 -Land held for sale was sold for cash on July 25, Y6 -Gold issued its financial statements on July 31, Y6 In its June 30, Y6 balance sheet, what amount should Gold report as current assets?
$225,000 $20,000 Cash (30,000 checks - 10,000 overdraft), A/R (35,000), inventory (58,000), prepaid expenses (12,000), land held for resale (100,000)'
On January 2, Year 1, Air, Inc., agreed to pay its former president $300,000 under a deferred compensation arrangement. Air should have recorded this expense in Year 1 but did not do so. Air's reported income tax expense would have been $70,000 lower in Year 1 had it properly accrued this deferred compensation. In its December 31, Year 2, financial statements, Air should adjust the beginning balance of its retained earnings by a
$230,000 debit (300,000 - 70,000)
n its December 31 balance sheet, Butler Co. reported trade accounts receivable of $250,000 and related allowance for credit losses of $20,000. What is the total amount of risk of accounting loss related to Butler's trade accounts receivable, and what amount of that risk is off-balance-sheet risk? Risk of Off-Balance- Accounting Loss Sheet Risk
$230,000; 0
At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account #101 $175,000 Checking account #201 (10,000) Money market account 25,000 90-day certificate of deposit due 2/28/Year 2 50,000 180-day certificate of deposit due 3/15/Year 2 80,000 Kale classifies investments with original maturities of 3 months or less as cash equivalents. In its December 31, Year 1, balance sheet, what amount should Kale report as cash and cash equivalents?
$240,000
On December 31, Year 4, Largo, Inc., had a $750,000 note payable outstanding due July 31, Year 5. Largo borrowed the money to finance construction of a new plant. Largo planned to refinance the note by issuing noncurrent bonds. Because Largo temporarily had excess cash, it prepaid $250,000 of the note on January 12, Year 5. In February Year 5, Largo completed a $1.5 million bond offering. Largo will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during Year 5. On March 3, Year 5, Largo issued its Year 4 financial statements. What amount of the note payable should Largo include in the current liabilities section of its December 31, Year 4, balance sheet?
$250,000
The following information has been compiled by Able Manufacturing Company: Sale of company products for the period to customers with net 30-day terms amounting to $150,000. Sale of company products for the period to a customer, supported by a note for $25,000, with special terms of net 180 days. Balance of trade receivables at the end of the last period was $300,000. Collections of open trade receivables during the period was $200,000. Rental income for the period, both earned and accrued but not yet collected, from the Able Employees' Credit Union for use of company facilities was $2,000. The open trade receivables balance to be shown on the statement of financial position for the period is
$250,000
Sussman Co. prepared cash-basis financial statements for the month ended January 31. A summary of activities: Credit sales of $5600 Collections of $1900 related to Jan credit sales Accrued salaries of $1200 By what amount will Sussman's cash-basis income for the month ended Jan 31 increase as a result of restating these activities to the accrual basis?
$2500. ((5600-1200) - 1900)
The following costs were incurred by Griff Co., a manufacturer, during the current year: Accounting and legal fees $ 25,000 Freight-in 175,000 Freight-out 160,000 Officers' salaries 150,000 Insurance 85,000 Sales representatives' salaries 215,000 What amount of these costs should be reported as general and administrative expenses?
$260,000 (25000 + 150000 + 85000)
For the 8 months ended August 31, Year 5, the carpet division of a flooring company, which is considered a major line of business, had an operating loss of $115,000 from operations. On September 1, Year 5, the board of directors voted to discontinue the division's operations. On December 31, Year 5, the division was sold for a pretax loss of $135,000. The division's operating loss for Year 5 was $240,000. The company's income tax rate is 30%. What amount of loss should the company report as discontinued operations in the December 31, Year 5, income statement?
$262,500 (375000 * (1-30%)
The following are held by Smite Co.: Cash in checking account $20,000 Cash in bond sinking fund account 30,000 Post-dated check from customer dated 1 month from balance sheet date 250 Petty cash 200 Commercial paper (matures in 2 months) 7,000 Certificate of deposit (matures in 6 months) 5,000 What amount should be reported as cash and cash equivalents on Smite's balance sheet?
$27,200
During January, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory:Units UnitTotalOn UnitsCostCostHandBalance on 1/11,000$1$1,0001,000Purchased on 1/760031,8001,600Sold on 1/20900700Purchased on 1/2540052,0001,100 Under the LIFO method, what amount should Metro report as inventory at January 31?
$2700
The following items were among those that were reported on Lee Co.'s income statement for the year ended December 31, Year 1: Legal and audit fees $170,000 Rent for office space 240,000 Interest on inventory floor plan 210,000 Loss on abandoned data processing equipment used in operations 35,000 The office space is used equally by Lee's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Lee's multiple-step income statement?
$290,000 ( 170000 + (240000 * 50%))
On January 1, Year 1, Flax Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of 8 years with no salvage value. On January 1, Year 4, Flax determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in Year 4 to reflect the additional data. The accumulated depreciation for this machine should have a balance at December 31, Year 4, of
$292,000
Cinnabar Construction Company has consistently used the input method based on costs incurred to recognize revenue from a performance obligation satisfied over time. During Year 1, Cinnabar entered into a fixed-price contract to construct an office building for $10 million. Information relating to the contract is as follows: December 31 Year 1 Year 2 Percentage of completion 20% 60% Estimated total costs at completion $7,500,000 $8,000,000 Gross profit recognized (cumulative) 500,000 1,200,000 Contract costs incurred during Year 2 were
$3,300,000
On April 30, Deer Corp. committed to a plan to sell a component of the entity. This sale represents a strategic shift that has a major effect on Deer's operations and financial results. For the period January 1 through April 30, the component had revenues of $500,000 and expenses of $800,000. The assets of the component were sold on October 15 at a loss for which no tax benefit is available. In its income statement for the year ended December 31, how should Deer report the component's operations from January 1 to April 30?
$300,000 should be included in the determination of income or loss from operations of a discontinued component
An entity enters into a contract with a customer to sell products X, Y, and Z in exchange for $250,000. Control over the products will be transferred to the customer at different points in time. The entity determines that the delivery of each product is a distinct performance obligation. Products X and Y are regularly sold separately and their standalone selling prices of $40,000 and $120,000, respectively, are directly observable. The standalone selling price of product Z of $160,000 was estimated using the adjusted market assessment approach. The entity determined that the discount provided to the customer does not relate to one or more specific products in the contract. What revenue will be recognized by the entity on the sale of product X?
$31,250
Inch Co. had the following balances at December 31, Year 4: Cash in checking account $ 35,000 Cash in money market account 75,000 U.S. Treasury bill, purchased 12/1/Yr 4, maturing 2/28/Yr 5 200,000 U.S. Treasury bill, purchased 12/1/Yr 3, maturing 5/31/Yr 5 150,000 Inch's policy is to treat as cash equivalents all highly-liquid investments with a maturity of 3 months or less when purchased. What amount should Inch report as cash and cash equivalents in its December 31, Year 4, balance sheet?
$310,000
During January, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory:Units UnitTotalOn UnitsCostCostHandBalance on 1/11,000$1$1,0001,000Purchased on 1/760031,8001,600Sold on 1/20900700Purchased on 1/2540052,0001,100 Under the moving-average method, what amount should Metro report as inventory at January 31?
$3225
Pubco is a public company that uses a calendar year and has a complex capital structure. The average market price of Pubco's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Pubco had outstanding $2 million of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Pubco also had outstanding 120,000 shares of preferred stock paying a quarterly dividend of $.10 per share and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Pubco's common stock for $28 per share were outstanding but unexercised. The weighted-average number of shares outstanding used to calculate Pubco's basic earnings per share (BEPS) amounts for the first quarter is
$344,000
Karr, Inc. reported net income of $300,000 for 2004. Changes occurred in several Balance Sheet accounts as follows: Equipment $25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional information: During 2004, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December 2004, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's 2004 Statement of Cash Flows, net cash provided by operating activities should be: $340,000 $347,000 $352,000 $357,000
$347,000 Net income $300,000 Plus depreciation expense 52,000 Less gain on sale of equipment (5,000) Equals net cash provided by operations $347,000
Kechara Corp. started a long-term construction project on a customer's land in Year 1. The following data relate to this project: Contract price $4,200,000 Costs incurred in Year 1 1,750,000 Estimated costs to complete 1,750,000 Amounts billed 900,000 Collections on amounts billed 800,000 The project is accounted for using the input method based on costs incurred to measure progress toward completion of the contract. In Kechara's Year 1 income statement, what amount of gross profit should be reported for this project?
$350,000
A company began work on a long-term construction contract in Year 1. The contract price was $3,000,000. Year-end information related to the contract is as follows: Year 1 Year 2 Year 3 Estimated total cost $2,000,000 $2,000,000 $2,000,000 Cost incurred 700,000 900,000 400,000 Billings 800,000 1,200,000 1,000,000 Collections 600,000 1,200,000 1,200,000 Under the input method based on costs incurred, the gross profit to be recognized in Year 1 is
$350,000 (3,000,000 - 2,000,000 * 35%)
In preparing its bank reconciliation at December 31, Case Company has the following data available: Balance per bank statement, 12/31 $38,075 Deposit in transit, 12/31 5,200 Outstanding checks, 12/31 6,750 Amount erroneously credited by bank to Case's account, 12/28 400 Bank service charges for December 75 Case's adjusted cash in bank balance at December 31 is
$36,125
Flex Co. uses a periodic inventory system. The following are inventory transactions for the month of January: 1/1 Beginning inventory 10,000 units at $3 1/5 Purchase 5,000 units at $4 1/15 Purchase 5,000 units at $5 1/20 Sales at $10 per unit 10,000 units Flex uses the average pricing method to determine the value of its inventory. What amount should Flex report as cost of goods sold on its income statement for the month of January?
$37,500
Dawson Corporation just received its bank statement for the month of May. This statement revealed that $2,500 of Dawson's deposits had not yet been recorded by the bank, outstanding checks totaled $1,500, a bank service charge of $100 had been assessed, and Dawson had erroneously recorded a check written for $1,000 as $100. As of May 31, Dawson's records indicated a cash balance of $40,500. The ending cash balance as of May 31 reported on the bank statement would have been
$38,500
Karl Corp.'s trial balance of income statement accounts for the year ended December 31, Year 1, included the following: Debit Credit Sales $150,000 Cost of sales $ 60,000 Administrative expenses 15,000 Loss on sale of equipment 9,000 Commissions to salespersons 10,000 Interest revenue 5,000 Freight-out 3,000 Loss on disposal of Karl's major operating segment 10,000 Credit loss expense 3,000 Totals $110,000 $155,000 Other Information: Karl's income tax rate is 30%. On Karl's income statement for Year 1, income from continuing operations is
$38,500
The following costs pertain to Den Co.'s purchase of inventory: 700 units of product A $3,750 Freight-in 175 Insurance cost during transit of purchased goods 100 Cost of materials and labor incurred to bring product A to salable condition 900 Total $4,925 What amount should Den record as the cost of inventory as a result of this purchase?
$4,925
On January 1, Year 1, Aker Corp. acquired a machine at a cost of $200,000. It was to be depreciated on the straight-line basis over a 5-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Aker's Year 1 financial statements. The oversight was discovered during the preparation of Aker's Year 2 financial statements. Depreciation expense on this machine for Year 2 should be
$40,000 (200,000 / 5)
A company has the following items on its year-end trial balance: Net sales $500‚000 Common stock 100,000 Insurance expense 75,000 Wages 50,000 Cost of goods sold 100,000 Cash 40,000 Accounts payable 25,000 Interest payable 25,000 What is the company's gross profit?
$400,000 (500,000 - 100,000)
The following information applied to Fenn, Inc., for the year just ended: Merchandise purchased for resale $400,000 Freight-in 10,000 Freight-out 5,000 Purchase returns 2,000 Fenn's inventoriable cost for the year was
$408,000
Conn Co. reported a retained earnings balance of $400,000 at December 31, Year 2. In August Year 3, Conn determined that insurance premiums of $60,000 for the 3-year period beginning January 1, Year 2, had been paid and fully expensed in Year 2. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its Year 3 statement of retained earnings?
$428,000
Mill Co.'s trial balance included the following account balances at December 31, Year 6: Accounts payable $15,000 Bonds payable, due Year 7 25,000 Discount on bonds payable, due Year 7 3,000 Dividends payable 1/31/Year 7 8,000 Notes payable, due Year 8 20,000 What amounts should be included in the current liability section of Mill's December 31, Year 6, balance sheet?
$45,000 (15000 + 22000 + 8000)
Zach Corp. pays commissions to its sales staff at the rate of 3% of net sales. Sales staff are not paid salaries but are given monthly advances of $15,000. Advances are charged to commission expense, and reconciliations against commissions are prepared quarterly. Net sales for the year ended March 31, Year 1, were $15 million. The unadjusted balance in the commissions expense account on March 31, Year 1, was $400,000. March advances were paid on April 3, Year 1. In its income statement for the year ended March 31, Year 1, what amount should Zach report as commission expense?
$450,000 (15,000,000 * 3%)
Ral Corp.'s checkbook balance on December 31, Year 7, was $5,000. In addition, Ral held the following items in its safe on that date:Check payable to Ral Corp., dated January 2, Year 8, in payment of a sale made in December Year 7, not included in December 31 checkbook balance$2,000Check payable to Ral Corp., deposited December 15 and included in December 31 checkbook balance but returned by Bank on December 30 stamped "NSF." The check was redeposited on January 2, Year 8, and cleared on January 9500Check drawn on Ral Corp.'s account, payable to a vendor, dated and recorded in Ral's books on December 31, but not mailed until January 10, Year 8300The proper amount to be shown as cash on Ral's balance sheet at December 31, Year 7, is
$4800
Common stock $10 par, 100,000 shares authorized, 50,000 shares issued of which 5,000 have been reacquired, and are held in treasury $ 450,000 Additional paid‐in capital common stock 1,100,000 Retained earnings 800,000 Subtotal $2,350,000 Less treasury stock (150,000) Total stockholders' equity $2,200,000 Harbor has insignificant amounts of convertible securities, stock warrants, and stock options. What is the book value per share of Harbor's common stock? $31 $44 $46 $49
$49.00 book value per common share= total stockholders equity/ outstanding shares = 2,200,000/
As of December 15, Year 4, Aviator had dividends in arrears of $200,000 on its cumulative preferred stock. Dividends for Year 4 of $100,000 have not yet been declared. The board of directors plans to declare cash dividends on its preferred and common stock on January 16, Year 5. Aviator paid an annual bonus to its CEO based on the company's annual profits. The bonus for Year 4 was $50,000, and it will be paid on February 10, Year 5. What amount should Aviator report as current liabilities on its balance sheet at December 31, Year 4?
$50,000
On December 28, Kerr Manufacturing Co. purchased goods costing $50,000. The terms were FOB destination. Some of the costs incurred in connection with the sale and delivery of the goods were as follows: Packaging for shipment $1,000 Shipping 1,500 Special handling charges 2,000 These goods were received on December 31. In Kerr's December 31 balance sheet, what amount of cost for these goods should be included in inventory?
$50,000
On July 1, Year 1, Rey Corp. purchased computer equipment at a cost of $360,000. This equipment was estimated to have a 6-year life with no residual value and was depreciated by the straight-line method. On January 3, Year 4, Rey determined that this equipment could no longer process data efficiently, that its value had been permanently impaired, and that $70,000 could be recovered over the remaining useful life of the equipment. What carrying amount should Rey report on its December 31, Year 4, balance sheet for this equipment?
$50,000
Multico is a securities dealer whose principal market is with other securities dealers. To take advantage of a perceived opportunity, on December 31, the end of its fiscal year, Multico acquired a financial asset in a market other than its principal market for $50,000. At that date, the identical instrument could be sold in Multico's principal market for $50,100 with a $200 transaction cost. Which of the following amounts would constitute fair value to Multico for the financial asset at December 31? $49,800 $49,900 $50,000 $50,100
$50,100 Since the asset could have been sold by Multico in its principal market for $50,100, that is its fair value to Multico.
Fuqua Steel Co. had the following financial events occur during the current year:A foreign government expropriated property held as an investment by Fuqua. This unusual event resulted in a $260,000 gain.A steel-forming operating segment suffered $255,000 in losses from hurricane damage. This unusual event was the fourth similar loss sustained in a 5-year period at that location.A material operating segment, steel transportation, was sold at a net loss of $350,000. This was Fuqua's first divestiture of one of its operating segments.Before income taxes, what amount of gain or loss should Fuqua report separately as a component of income from continuing operations?
$5000 (260,000 - 255,000)
A flash flood swept through Hat, Inc.'s warehouse on May 1. After the flood, Hat's accounting records showed the following:Inventory, January 1$ 35,000Purchases, January 1 through May 1200,000Sales, January 1 through May 1250,000Inventory not damaged by flood30,000Gross profit percentage on sales40%What amount of inventory was lost in the flood?
$55,000
A construction company recognizes revenue from construction contracts over time using the input method based on costs incurred. It reports the following: Year 1 Year 2 Construction costs $100 $200 Estimated cost to complete at year-end 300 0 The contract price is $1,000. What is the profit recognized in Year 2?
$550
Dixon Company has the following items recorded on its financial records: Available-for-sale debt securities $200,000 Prepaid expenses 400,000 Treasury stock 100,000 The total amount of the above items to be shown as assets on Dixon's statement of financial position is
$600,000
Gow Constructors, Inc., has consistently used the input method based on costs incurred to measure the progress toward completion of a long-term construction contract. In Year 1, Gow started work on an $18 million construction contract that was completed in Year 2. The following information was taken from Gow's Year 1 accounting records:Costs incurred$ 5,400,000Collections4,200,000Estimated costs to complete10,800,000What amount of gross profit should Gow have recognized in Year 1 on this contract?
$600,000
Nomar Co. shipped inventory on consignment to Seabright Co. that cost $20,000. Seabright paid $500 for advertising that was reimbursable from Nomar. At the end of the year, 70% of the inventory was sold for $30,000. The agreement states that a commission of 20% will be provided to Seabright for all sales. What amount of net inventory on consignment remains on the balance sheet for the first year for Nomar?
$6000
The differences in Beal Inc.'s Balance Sheet accounts at December 31, 20x4 and 20x3, are presented below: Assets Increase (Decrease) Cash and cash equivalents $ 120,000 Short‐term investments 300,000 Account receivable, net ‐ Inventory 80,000 Long‐term investments (100,000) Plant assets 700,000 Accumulated depreciation ‐ =$1,100,000 Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $ (5,000) Dividends payable 160,000 Short‐term bank debt 325,000 Long‐term debt 110,000 Common Stock, $10 par 100,000 Additional paid‐in capital 120,000 Retained Earnings 290,000 =$1,100,000 The following additional information relates to 20x4: net income was $790,000; cash dividends of $500,000 were declared; building costing $600,000, with a carrying amount of $350,000 was sold for $350,000; equipment costing $110,000 was acquired through issuance of long‐term debt; and a long‐term investment was sold for $135,000. There were no other transactions affecting long‐term investments. These investments are categorized as available for sale. 10,000 shares of common stock were issued for $22 a share. The short‐term investments are classified as trading securities. In Beal's 20x4 Statement of Cash Flows, net cash provided by operating activities was: $1,160,000 $1,040,000 $620,000 $705,000
$620,000 This answer is an amount far in excess of net income. The correct answer is less than net income. The correct calculation is shown below: Net income $ 790,000 Increase in inventory (80,000) Decrease in AP/accrued liabilities (5,000) Gain on sale of long‐term investments ($135,000 ‐ $100,000) (35,000) Depreciation expense 250,000 Increase in short‐term investments (from purchase) (300,000) Equals net operating cash inflow $ 620,000 Entry for building sale: Cash 350,000 Accumulated depreciation 250,000 Equipment 600,000 The accumulated depreciation account did not change during the year. Therefore, depreciation expense equals $250,000, which offsets the decrease in the account due to the sale of the equipment.
Clear Co.'s trial balance has the following selected accounts: Cash (includes $10,000 in bond-sinking fund for long-term bond payable) $50,000 Accounts receivable 20,000 Allowance for credit losses 5,000 Deposits received from customers 3,000 Merchandise inventory 7,000 Unearned rent 1,000 Investment in trading debt securities 2,000 What amount should Clear report as total current assets in its balance sheet?
$64,000. (40,000 + 15000 + 7000 + 2000)
Paulson Company uses the input method based on costs incurred to measure progress toward completion of long-term construction contracts. The following information relates to a contract that was awarded at a price of $700,000. The estimated costs were $500,000, and the contract duration was 3 years. Year 1 Year 2 Year 3 Cumulative cost to date $300,000 $390,000 $530,000 Costs to complete at year end 250,000 130,000 -0- Progress billings 325,000 220,000 155,000 Collections on account 300,000 200,000 200,000 Assuming that $65,000 was recognized as gross profit in Year 1, the amount of gross profit Paulson recognized in Year 2 was
$70,000
Karl Corp.'s trial balance of income statement accounts for the year ended December 31, Year 1, included the following: DebitCreditSales$80,000Cost of sales$ 60,000Administrative expenses15,000Loss on sale of equipment9,000Commissions to salespersons10,000Interest revenue5,000Freight-out3,000Loss on disposal of a majoroperating segment10,000Credit loss expense3,000Totals$110,000$85,000 Other Information:Karl's income tax rate is 30%.On Karl's income statement for Year 1, the loss on discontinued operations is
$7000
During 20x1, Teb, Inc. had the following activities related to its financial operations: Payment for the early retirement of long‐term bonds payable (carrying value $740,000) $750,000 Distribution in 20x1 of cash dividends declared in 20x0 to preferred shareholders 62,000 Carrying value of convertible preferred stock in Teb, converted into common shares 120,000 Proceeds from the sale of treasury stock (carrying value at cost, $86,000) 95,000 In Teb's 20x1 Statement of Cash Flows, net cash used in financing activities should be: $717,000 $716,000 $597,000 $535,000
$717,000 750000+62000-95000=717000 conversion of stock is a non cash activity... dont factor it in
Pak Co.'s professional fees expense account had a balance of $82,000 at December 31, Year 1, before considering year-end adjustments relating to the following: Consultants were hired for a special project at a total fee not to exceed $65,000. Pak has recorded $55,000 of this fee based on billings for work performed in Year 1. The attorney's letter requested by the auditors dated January 28, Year 2, indicated that legal fees of $6,000 were billed on January 15, Year 2, for work performed in November Year 1, and unbilled fees for December Year 1 were $7,000. What amount should Pak report for professional fees expense for the year ended December 31, Year 1?
$95,000 (82000 + 6000 + 7000)
On February 12, Year 1, VIP Publishing, Inc., purchased the copyright to a book for $15,000 and agreed to pay royalties equal to 10% of book sales, with a guaranteed minimum royalty of $60,000. VIP had book sales of $800,000 in Year 1. In its Year 1 income statement, what amount should VIP report as royalty expense?
$80,000 (800000 * 10%)
Ultra Co. uses a periodic inventory system. The following are inventory transactions for the month of January: 1/1 Beginning inventory 20,000 units at $13 1/20 Purchase 30,000 units at $15 1/23 Purchase 40,000 units at $17 1/31 Sales at $20 per unit 50,000 units Ultra uses the LIFO method to determine the value of its inventory. What amount should Ultra report as cost of goods sold on its income statement for the month of January?
$830,000
Beck Co.'s inventory is as follows:Beginning inventory10 trees at$ 50March 4purchased 6 trees at 55March 12sold 8 trees at 100March 20purchased 9 trees at 60March 27sold 7 trees at 105March 30purchased 4 trees at 65What was Beck's cost of goods sold using the last-in, first-out (LIFO) perpetual method?
$850
Searles does not elect the fair value option for recording financial assets and liabilities. What amount of comprehensive income should Searles Corporation report on its statement of income and comprehensive income given the following net of tax figures that represent changes during a period? Pension liability adjustment recognized in 
 OCI $ (3,000) Unrealized gain on available‐for‐sale 
 securities 15,000 Reclassification adjustment, for securities 
 gain included in net income (2,500) Stock warrants outstanding 4,000 Net income 77,000 $86,500 $89,000 $89,500 $90,500
$86,500 Comprehensive income is computed as follows: Net income 77,000 Other comprehensive income net of tax: Unrealized gain on securities 15,000 Less: Reclassification adjustment (2,500) 12,500 Pension liability adjustment (3,000) Other comprehensive income 9,500 Comprehensive income $ 6,500 Notice that stock warrants outstanding are not included as part of comprehensive income.
The personal statement of financial condition for Allen Harvey reported a net worth of $825,000 on December 31, 20X0. During the calendar year 20X1, Harvey had earned income of $68,000. For 20X1, his broker's reports showed that his investments had increased by $23,000. In addition, for the year, his credit card debt increased $6,000 and his home mortgage principal balance decreased by $24,000. There were no other changes in Harvey's financial condition during 20X1. Which one of the following is Harvey's net worth as of December 31, 20X1? $934,000 $878,000 $866,000 $830,000
$866,000 net worth= beginning balance (825000)+ increase in investments (23000)- increase in credit card debt (6000)+ increase resulting from decrease in mortgage (24000)=$866,000
Thorpe Co.'s income statement for the year ended December 31, Year 1, reported net income of $74,100. The auditor raised questions about the following amounts that had been included in net income: Unrealized holding loss on available-for- sale debt securities $(5,400) Gain on early retirement of bonds payable (net of $11,000 tax effect) 22,000 Adjustment to profits of prior years for errors in depreciation (net of $3,750 tax effect) (7,500) Loss from fire (net of $7,000 tax effect) (14,000) The loss from the fire was an infrequent but not unusual occurrence in Thorpe's line of business. Thorpe's December 31, Year 1, income statement should report net income of
$87,000 (74100 + 5400 +7500)
Tone Company is the defendant in a lawsuit filed by Witt in Year 2 disputing the validity of a copyright held by Tone. At December 31, Year 2, Tone determined that Witt would probably be successful against Tone for an estimated amount of $400,000. Appropriately, a $400,000 loss was accrued by a charge to income for the year ended December 31, Year 2. On December 15, Year 3, Tone and Witt agreed to a settlement providing for a cash payment of $250,000 by Tone to Witt, and the transfer of Tone's copyright to Witt. The carrying amount of the copyright on Tone's accounting records was $60,000 at December 15, Year 3. What would be the effect of the settlement on Tone's income before income tax in Year 3?
$90,000 increase
he following changes in Vel Corp.'s account balances occurred during year 1: Increase Assets $89,000 Liabilities 27,000 Capital stock 60,000 Additional paid‐in capital 6,000 Except for a $13,000 dividend payment and the year's earnings, there were no changes in retained earnings for year 1. What was Vel's net income for year 1? $ 4,000 $ 9,000 $13,000 $17,000
$9000 The requirement is to determine the net income for year 1 by analyzing changes in the balance sheet. Recall the accounting equation: Assets − Liabilities = Stockholders' equity. By inserting the changes given into this formula, we find an increase of $62,000 exists in the entire stockholders' equity section ($89,000 − $27,000 = $62,000). Stockholders' equity is composed of capital stock, additional paid‐in capital and retained earnings. Because increases in the other two balances are given that total $66,000 ($60,000 + $6,000), the retained earnings balance must have decreased by $4,000 ($66,000 − $62,000). When dividends are paid, this reduces retained earnings, while Vel Corp. net income increases the balance of retained earnings. For the equation to balance, the changes in retained earnings account must reduce total stockholders' equity by $4,000. Therefore, if $13,000 in dividends are paid, which reduce retained earnings, and total retained earnings are to be reduced by $4,000, then net income, which increases retained earnings, must be $9,000. This creates the $4,000 difference needed to make the equation balance ($89,000 − $27,000 = $66,000 − $4,000). The following shows the analysis of the retained earnings account: Retained earnings (beg.) $ xxx Net income (plug) 9,000 Dividends (13,000) Retained earnings (decrease) $ (4,000)
On the December 31 balance sheet of Mann Co., the current receivables consisted of the following: Trade accounts receivable $ 93,000 Allowance for credit losses (2,000) Claim against shipper for goods lost in transit (November) 3,000 Selling price of unsold goods sent by Mann on consignment at 130% of cost (not included in Mann's ending inventory) 26,000 Security deposit on lease of warehouse used for storing some inventories 30,000 Total $150,000 At December 31, the correct total of Mann's current net receivables was
$94,000
A company provides the following information: Cash Receipts from customers: From Y1 Sales: Y1 $95,000 Y2 $120,000 From Y2 Sales: Y2 $200,000 Y3 $75,000 From Y3 Sales: Y2 $50,000 Y3 $225,000 What is the accrual based revenue for Year 2?
($200,000 Y2 + 75,000 Y3) $275,000
Determination of major funds for fund FS presentation in CAFR
(1) A+DO or L+DI or revenues or expenditures >= 10% of total of all governmental OR enterprise funds (2) A+DO or L+DI or revenues or expenditures >= 5% of total of all governmental AND enterprise funds
Ongoing standard setting process
(1) Proposed FASB amendments to the ASC are issued for public comment in the form of exposure drafts. A majority vote of the Board members is required to approve an Exposure draft for issuance. - this is part of the due-process activities (2) At the end of public comment period, the FASB staff analyses all the comment letters and position papers. Then the Board re-deliberates on the issue. (3) When the Board is satisfied, the FASB staff prepares an Accounting Standards Update (ASU) for Board consideration. (4) A majority of the vote of the Board is required to amend the ASC Accounting Standards updates are not Authoritative literature.
Dollar value LIFO
(1) Start with ending inventory measured at current costs (2) current cost / price index = LIFO at BY cost (3) determine LIFO layer added (or subtracted) for each year (4) base layer (1) + year 2 layer * (Yr 2 PI) + year 3 layer * (Yr 3 PI) = $ value LIFO in specific year
Withdrawal of a partner under goodwill method
(1) asset adjustment to revalue assets to reflect FV (cr. capital accounts for % share) (2) dr. goodwill and cr. capital accounts on their % share (goodwill = implied based on payment to withdrawing partner for the percentage they owned; get the leaving partner's account up to buy out balance and then allocate to others pro ratably) (3) dr. partner's account who is getting bought out and cash for the buy out amount
Withdrawal of a partner under bonus method
(1) asset adjustment to revalue assets to reflect FV (cr. capital accounts for % share) (2) dr. partner's account who is getting bought out for their balance; make up the balance with debits to remaining partners' accounts (3) pay out partner who is withdrawing
Three characteristics of an operating segment
(1) business activities (2) activities reported to CoDM (3) discrete operating information available
Calculation of depletion
(1) depletion base = [REAL] residual value (subtract) + extraction/development costs + anticipated restoration costs + land purchase price (2) unit depletion rate = depletion base / estimated recoverable units (3) total depletion = unit depletion rate * number of units extracted Depletion is allocated between COGS and inventory based on if extracted units are sold
Bonus method for new contribution to partnership
(1) determine total new capital (2) if NBV purchased < amount contributed = bonus is credited to old partners (increase their accounts) (3) if NBV purchased > amount contributed = bonus is debited to old partners (decrease their accounts)
Intercompany inventory transactions
(1) eliminate entire sale / COGS of original sale = dr. original sales, cr. original COGS (2) eliminate GP remaining in EI = cr. inventory (% unsold * GP) (3) eliminate GP from COGS = cr. COGS (% sold * GP) If GP in beginning inventory, dr. RE for profit in beginning inventory
Goodwill method for new contribution to partnership
(1) goodwill = total new capital (implied by % bought for $$ paid) - [old capital + new investment amount] (2) goodwill is allocated to old partners (credited) based on OLD ratios; new partner's account = amount credited
Parts of CAFR
(1) introductory = letter of transmittal, org chart, and principle officers (2) basic FS + RSI = audited = MD&A, G-W, funds, notes, and RSI (3) statistical section = 10 years selected data + economic data + other data
what are the two recognition criteria that need to be met for an item to be recognized as an element
(1) it is probable that a future economic benefit associated with the item will flow to or from the entity, and (2) the item has a cost or value that can be measured with reliability. In addition, the "substance over form" principle must be considered (for example, accounting for income taxes and for capital leases).
When financial statements are prepared using an income tax basis, two accounting methods can be used:
(1) modified cash basis—hybrid method of IRS and (2) accrual basis—IRS
GAAP impairment of intangible or tangible assets with finite useful life
(1) recoverability test (if NBV > undiscounted cash flows) (2) loss = CV - FV or PV no reversal unless held for disposal
Liquidation of a partnership / division of assets
(1) sell non-cash assets and division of G/L (SP - CV) based on share (2) Payments of liabilities / offset loans from other partners (partner's advances - can either pay them in cash if have enough cash or just offset in partner's capital account if the capital account is negative at that point in the liquidation) (3) division of partner deficiency (absorbed by remaining partners based on remaining profit/loss ratios)
Calculation of current GP under POC method
(1) total gross profit = price - total costs expected to be incurred (2) POC = costs to date / total expected costs (3) GP to date = total GP * POC (4) current GP = CY GP to date - PY GP to date
IFRS impairment of intangible or tangible assets with finite useful life
(2) CV compared to recoverable amount (greater of FV - costs to sell OR PV of FCFs); reversal allowed
GAAP impairment of intangible infinite life assets
(2) loss = CV - FV no reversal unless held for disposal
Number of Days' Sales in Average Receivables =
(300 or 360 or 365 (or other measure of business days in a year)) / Accounts Receivable Turnover (computed above)
Number of Days' Supply in Inventory =
(300 or 360 or 365 (or other measure of business days in a year)) / Inventory Turnover (computed above)
defined contribution plan
(401K) specifies the periodic amount of contributions
Rice Co. was incorporated on January 1, Year 6, with $500,000 from the issuance of stock and borrowed funds of $75,000. During the first year of operations, net income was $25,000. On December 15, Rice paid a $2,000 cash dividend. No additional activities affected equity in Year 6. At December 31, Year 6, Rice's liabilities had increased to $94,000. In Rice's December 31, Year 6 balance sheet, total assets should be reported at
(94,000 + equity $525000) = $617,000
Securities Defensive-Interval Ratios =
(Cash + (Net) Receivables + Marketable Securities) / Average Daily Cash Expenditures
Acid-Test Ratio (also known as Quick Ratio) =
(Cash + (Net) Receivables + Marketable Securities) / Current Liabilities
Calculation of Diluted EPS
(NI - PD + interest expense on convertible bonds after tax + PD if convertible) / WACSO + if-converted shares (use if-converted TS method for options/rights)
Calculation of Basic EPS
(NI - cumulative PD - declared noncumulative PD) / WACSO
Return on Total Assets =
(Net Income + (add back) Interest Expense (net of tax effect)) / Average Total Assets
Times Interest Earned Ratios =
(Net Income + Interest Expense + Income Tax) / Interest Expense
Return on Common Stockholders' Equity =
(Net Income - Preferred Dividend (obligation for the period only)) / Average Common Stockholders' Equity (e.g. Beginning + Ending/2)
Earnings Per Share (EPS -- Basic Formula) =
(Net Income - Preferred Dividends (obligation for the period only)) / Weighted Average Number of Shares Outstanding
Accounts Receivable Turnover =
(Net) Credit Sales / Average (Net) Accounts Receivable (e.g. (Beginning + Ending)/2)
3 categories of the statement of Cash Flows
(OIF) "Oh If" I could pass the CPA Operating Investing Financing
Quick or acid-test ratio =
(cash +- short term investments +- AR)/CL SHOULD BE ATLEAST 1.00
Calculation of income from investee account when owned PS and CS
(preferred div x PS%) + ([sub NI - PD] x CS%)
Non-operating
* Auxiliary activities (incidental, not part of core activities), interest expense *"Other"
Form 11-K
* This is the annual report of a company's employee benefit plan(s)
Exceptions to the General Rule
*"To LIFO" and change in depreciation method - prospective 1. Impracticable to Estimate 2. Change in Depreciation Method
Faithful Representation ("Completely Neutral is Free from Error")
*(Reliable) *To be useful, financial information must faithfully represent the reported economic phenomena 1. Completeness 2. Neutrality 3. Freedom from Error
Quantitative Thresholds for Reportable Segments (Materiality Tests)
*10% "Size" Test -Revenue -Reported Profit or Loss -Assetse *75% "Reporting Sufficiency" Test
Tag
*A "machine-readable code" that gives a standard definition for each line item in an income statement, cash flow statement, balance sheet, or other financial or non-financial data, including data contained in the notes to the financial statements -Tags include descriptive labels, definitions, references to US GAAP, and other elements that provide contextual information that allow data to be recognized and processed by software
Change in Depreciation Method
*A change in the method of depreciation, amortization, or depletion is considered to be both a change in accounting principle and a change in estimate -These changes should be accounted for as changes in estimate and are handled prospectively -The new depreciation method should be used as of the beginning of the year of the change in estimate and should start with the current book value of the underlying asset -No retroactive or retrospective calculations should be made, and no adjustment should be made to retained earnings
Completeness
*A complete depiction of financial information includes all information necessary for the user to understand the reported economic phenomena, including descriptions and explanations -Primary financial statements and notes
Held for Sale
*A component of a business (US GAAP) or a disposal group (IFRS) is classified as "held for sale" in the period in which ALL of the following criteria are met: 1. Management commits to a plan to sell the component 2. The component is available for immediate sale in its present condition 3. An active program to locate a buyer has been initiated 4. The sale of the component is probable and the sale is expected to be complete within one year 5. The sale of the component is being actively marketed 6. Actions required to complete the sale make it unlikely that significant changes to the plan will be made or that the plan will be withdrawn
Operating Segments
*A component of an enterprise: -That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise) -Whose operating results are regularly reviewed by the enterprise's "Chief Operating Decision Maker" to make decisions about resources to be allocated to the segment and assess its performance, and -For which discrete financial information is available (traceable cash flow)
Development-Stage Enterprises (US GAAP): Disclosure
*A development-stage enterprise must issue the same financial statements as any other enterprise -These statements should be prepared in conformity with US GAAP *Additional required disclosures are: -Identify the financial statements as those of a development stage enterprise -In the balance sheet, describe cumulative net losses as "deficit accumulated during the development stage" -In the income statement, show revenues and expenses for each period being presented, and present a cumulative amount (generally of losses) from the company's inception -In the statement of cash flows, include: 1. Cumulative amounts of cash inflows and cash outflows from the company's inception, and 2. Current amounts of cash inflows and cash outflows for each period presented *In the statement of stockholders' equity, include the following: 1. Number of shares of stock (or other securities) issued 2. Dates of issuance, and 3. Dollar amounts assigned 4. If noncash consideration is involved in the issuance, then include: -A description of the nature of the consideration, and -The basis for its valuation
Subsequent Increases in Fair Value
*A gain is recognized for any subsequent increases in fair value minus the costs to sell (but not in excess of the previously recognized cumulative loss) -Only up to amount previously recorded as loss
"D": Anticipated Future Gain or Losses
*A gain or loss not previously recognized that results from the sale of the component is recognized at the date of sale and not before -Gains or losses anticipated to occur in future periods are not recognized until they occur *Wait until actually occurs
Initial and Subsequent Impairment Losses
*A loss is recognized for recording the impairment of the component (i.e., any initial or subsequent write-down to fair value less costs to sell)
Neturality
*A neutral depiction of financial information is free from bias in selection or presentation
Taxonomy
*A taxonomy defines the specific tags used for individual items of business and financial data. XBRL taxonomies include: -XBRL US GAAP Financial Reporting Taxonomy -XBRL IFRS Taxonomy -Global Ledger Taxonomy -Industry Specific Taxonomies -Company Specific Tags
Global Ledger Taxonomy
*A taxonomy independent of other reporting standards or system types that permits flexible, multi-national consolidation
Reporting Issues: Interim Period Reporting
*A total for comprehensive income shall be reported in condensed financial statements of interim periods issued to shareholders
Standard-Setting Process - Accounting Standards Updates
*Accounting Standard Updates aren't authoritative literature, but instead provide background information, update the Codification, and describe the basis for conclusions on changes in the Codification *All new GAAP and SEC amendments are fully integrated into the existing structure of the Codification
Direct Effects of a Change
*Adjustments that would be necessary to restate the financial statements of prior periods
Risk and Uncertainty Adjustments to Cash Flows
*Adjustments to the expected cash flows used in complex present value computations (rather than interest rate adjustments) are required for uncertainties (e.g., default risk)
Losses (L)
*Decreases in equity from peripheral transactions and other events except expenses and distributions to owners *Selling Price < Book Value *Impairment/Writedown
Large Accelerated Filer
*Defined by the SEC as an issuer with a worldwide market value of outstanding common equity held by non-affiliates of $700 million or more as of the last business day of the issuers most recently completed second fiscal quarter
Reporting Issues: Required Disclosures
*All formats must disclose: 1. The tax effects of each component included in (current) other comprehensive income, either as part of the statement presentation or in the notes to the financial statements 2. The changes in the accumulated balances of each component of other comprehensive income (e.g., pension adjustments, unrealized holding gains/losses on available-for-sale securities, foreign currency items, the effective portion of cash flow hedges, and IFRS revaluation surplus) -The changes in accumulated balances by component may be shown on the face of the financial statements or in the notes to the financial statements 3. Total accumulated other comprehensive income in the balance sheet as an item of equity 4. The reclassification adjustments, which are made to avoid double counting in other comprehensive income items that are displayed in net income for the current year (e.g., previously reported unrealized gains on available-for-sale securities that were realized during the current year)
"D": Conditions that Must be Present
*All related costs shall be recognized when the obligations to others exist, not necessarily in the period of commitment to a plan. Both of the following conditions must be met in order to report in discontinued operations the results of operations of a component that has been disposed of or is held for sale: 1. Eliminated from Ongoing Operations -The operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal 2. No Significant Continuing Involvement -The entity will not have any significant continuing involvement in the operations of the component after the disposal
Disclosure
*All the following must be disclosed in the notes to the financial statements in the period the exit or disposal activity is initiated and all subsequent periods until the activity is completed: 1. A description of the exit or disposal activity, including the facts and circumstances leading to the expected completion date 2. For each major cost associated with an activity -The total amount expected to be incurred in connection with the activity, the amount incurred in the period, and the cumulative amount incurred to date -A reconciliation of the beginning and ending liability balances showing the changes during the period for costs incurred, costs paid or otherwise settled, and any other adjustments with an explanation of the reasons 3. The line item(s) in the income statement in which the costs are aggregated 4. For each reportable segment, the total amount of costs expected to be incurred, the amount incurred in the period and incurred to date, net of any adjustments with an explanation of the reasons 5. If a liability for a cost associated with the activity is not recognized because fair value can't be reasonably estimated, that fact and the reasons for that should be disclosed
Accelerated Filer
*An accelerated filer is defined as an issuer with a worldwide market value of outstanding common equity held by non-affiliates of $75 million or more, but less than $700 million
Nonrecurring Changes
*An accounting change should not be made for a transaction or event in the pas that has been terminated or is nonrecurring
Rule of Preferability
*An accounting principle may be changed only if required by GAAP/IFRS or if the alternative principle is preferable and more fairly presents the information
Cost
*An amount (measured in money) expended for items such as capital assets, services (e.g., payroll), and merchandise received *The amount actually paid for something
Opening IFRS Financial Statements: Accounting Policies
*An entity must use the same accounting policies in its opening IFRS balance sheet and in all periods presented in the first IFRS financial statements -IFRS allows limited exemptions in areas where the cost of the initial application of IFRS accounting policies would be likely to exceed the benefits to financial statement users -IFRS also prohibits the retrospective application of certain IFRS that would require judgments by management about past conditions after the outcome of a particular transaction is already known *Mandatory Exceptions to the Retrospective Application of IFRS at the time of the initial adoption of IFRS: -Derecognition of financial assets and financial liabilities -Hedge accounting -Non-controlling interests -Classification and measurement of financial assets -Embedded derivatives
Explanation of Transition to IFRS
*An entity should disclose how the transition from previous GAAP to IFRS affected its reported financial position, financial performance, and cash flows. The disclosure should include: -A reconciliation of its equity reported under previous GAAP to its equity under IFRS for: 1. The date of transition to IFRS, and 2. The end of the last period presented in the entity's most recent annual financial statements in accordance with previous GAAP -A reconciliation of total comprehensive income in accordance with IFRS to total comprehensive income (or total net income if comprehensive income was not reported) in accordance with previous GAAP for the latest period in theentity's most recent financial statements -Disclosures related to the recognition or reversal of impairment losses, if impairment losses or reversals were recognized for the first time when preparing the opening IFRS balance sheet
Criteria for Liability Recognition
*An entity's commitment to an exit or disposal plan, by itself, is not enough to result in liability recognition *A liability associated with an exit or disposal activity should be recognized only when all of the following criteria are met: 1. An obligating event has occurred (forced to) 2. The event results in a present obligation to transfer assets (payments) or to provide services in the future, and 3. The entity has little or no discretion to avoid the future transfer of assets or providing of services *Future operating losses expected to be incurred as part of an exit or disposal activity are recognized in the period(s) incurred
Opening IFRS Financial Statements
*An entity's first IFRS financial statements must include at least 3 balance sheets (end of current period, end of prior period, nd beginning of prior period), 2 statements of comprehensive income, 2 income statements (if using the 2-statement approach to presenting comprehensive income), 2 statements of cash flows, 2 statements of changes in equity, and related notes
Historical Cost Principle
*As a general rule, financial information is accounted for and based on cost, not current market value
Indirect Effects of a Change
*Differences in nondiscretionary items based on earnings (e.g., bonuses) that would have occurred if the new principle had been used in prior periods
Revenue Recognition Principle
*As a general rule, revenue should be recognized when it is earned and when it is realized or realizable -Earned: Revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues -Realized or Realizable: Revenues and gains are recognized when products, merchandise, or other assets are exchanged for cash or claims to cash or when related assets received or held are readily convertible to known amounts of cash or claims to cash *Realized: Already been paid *Realizable: Accrue for revenue (A/R)
Exit or Disposal Acitivites
*As part of its convergence with IFRS, US GAAP requires the recognition of a liability for the costs associated with an exit or disposal activity
5 Elements of Present Value Measurement
*Asset or Liability 1. Estimate of future cash flow 2. Expectations about timing variations of future cash flows (timing) 3. Time value of money (the risk-free rate of interest) 4. The price for bearing uncertainty -Credit Risk 5. Other factors (e.g., liquidity issues and market imperfections) -3,4,5 Impacts discount rate and/or future cash flow
IASB Elements
*Assets, liabilities, equity, income (including revenue and gains), expenses (including expenses and losses), and capital maintenance adjustments -Capital maintenance adjustments are increases and decreases in equity that arise from the revaluation or restatement of assets and liabilities
Reclassification Adjustments
*Avoids double counting *Move other comprehensive income items from accumulated other comprehensive income to the income statement
Summary of Significant Accounting Policies: Accounting Policies Commonly Described in this Footnote
*Basis of consolidation *Depreciation methods *Amortization of intangibles *Inventory pricing *Accounting for recognition of profit on long-term construction contracts *Recognition of revenue from franchising or leasing operations
Summary of Significant Accounting Policies
*Both US GAAP and IFRS require that a description of all significant policies be included as an integral part of the financial statements (not optional) -Preferred Presentation: 1st or 2nd note -Policies presented in other notes should not be duplicated *IFRS requires an explicit and unreserved statement of compliance with IFRS in the notes to the financial statements. An entity cannot describe financial statements as complying with IFRSs unless they comply with all IFRS requirements *US GAAP doesn't have a similar requirement
SFAC No 8, "Conceptual Framework for Financial Reporting - Chapter 3: Qualitative Characteristics of Useful Financial Information"
*Characteristics that are likely to be most useful to existing and potential investors, lenders, and other creditors in making decisions about the reporting entity based on financial information
Company Specific Tags
*Companies can create their own tags when needed tags aren't included in any existing taxonomy
Error Correction Accounting
*Comparative Financial Statements Presented -Correct the Information, if the Year is Presented -If comparative financial statements are presented and financial statements for the year with the error are presented, merely correct the error in those prior financial statements -Adjust Beginning Retained Earnings of the Earliest Year Presented, if the Year is Not Presented -If comparative financial statements are presented and financial statements for the year with the error are not presented (e.g., because it is too far back in years, adjust (net of tax) the opening retained earnings of the earliest year presented (adjust as if never made the error) *Comparative Financial Statements Not Presented -If comparative financial statements are not presented the error correction should be reported as an adjustment to the opening balance of retained earnings (net of tax)
Reporting Issues: Other Comprehensive Income
*Components of other comprehensive income may be reported either (1) net of tax or (2) before related tax effects with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items *Option
Summary of Significant Accounting Policies: Items Not Included in this Footnote
*Composition of accounts and amounts in dollars of account balances *Details relating to changes in accounting principles *Dates of maturity and amounts of long-term debt *Yearly computation of depreciation, depletion and amortization
Exit and Disposal Costs
*Costs associated with exit and disposal activities include: 1. Involuntary employee termination benefits 2. Costs to terminate a contract that is not a capital lease 3. Other costs associated with exit or disposal activities, including costs to consolidate facilities or relocate employees
Expenses
*Costs that only benefit the current period or the allocation of unexpired costs to the current period for the benefit received) -Reported at gross amounts -Gross Concept
Unexpired Costs
*Costs that will expire in future periods and be charged (allocated in a systematic and rational manner or matched) against revenues from future periods *Examples: -Unexpired Costs (Asset) ---> Expired Costs (Expense) -Inventory --> COGS -Unexpired (prepaid) cost of insurance ---> Insurance Exp -Net book value of fixed assets --> Dep Exp -Unexpired cost of patents --> Patents Exp (amort)
Distributions to Owners
*Decreases in assets from transfers of cash, property, or services, or the incurrence of a liability to owners
Two-Statement Approach
*Displays comprehensive income as separate statement that immediately follows the income statement *Start with net income instead of revenue Net income (per I/S, "separate statement") +Other comprehensive income, net of income tax Pension net loss Unrealized holding gains (available-for-sale securities) Foreign currency items Other comprehensive income Comprehensive Income
Single-Statement Approach
*Displays other comprehensive income items individually and in total, below the net income amount, and totals them for comprehensive income Revenues Expenses Income before income taxes Income tax Net Income +Other Comprehensive income, net of income tax: Pension net loss Unrealized holding gains (available-for-sale securities) Foreign currency items Other comprehensive income (Current Year) Comprehensive Income
Classified Balance Sheet
*Distinguishes current and noncurrent assets and liabilities
Entity Assumption
*Economic activity can be accounted for when considering an identifiable set of activities (e.g., a separate corporation, division, etc.)
Periodicity Assumption
*Economic activity can be divided into meaningful time periods
Effective Portion of Cash Flow Hedges
*Effective = Worked the way we planned *Effective portion of a cash flow hedge is reported as a component of other comprehensive income until the cash flows associated with the hedged item are realized
US GAAP - FASB Accounting Standards Codification
*Effective July 1, 2009, the FASB Accounting Standards Codification became the single source of authoritative nongovernmental US GAAP -Accounting and financial reporting practices not included in the Codification are not GAAP
SFAC No. 6, "Elements of Financial Statements" (REGL ALE needs ID)
*Elements are the components of the financial statements. They must be measurable and meet the recognition requirements 1. Comprehensive Income 2. Revenues 3. Expenses 4. Gains 5. Losses 6. Assets 7. Liabilities 8. Equity 9. Investments by Owners 10. Distributions to Owners
Fundamental Assumptions (of US GAAP)
*Entity Assumption *Going Concern Assumption *Monetary Unit Assumption *Periodicity Assumption *Historical Cost Principle *Revenue Recognition Principle -Earned -Realized or Realizable *Matching Principle *Accrual Accounting *Full Disclosure Principle *Conservatism Principle
Securities and Exchange Commission (SEC)
*Established by the Securities and Exchange Act of 1934 *All companies that issue securities in the US are subject to SEC rules and regulations *SEC has issued public company specific accounting rules and regulations in Regulation S-X, Financial Reporting Releases (FRR), Accounting Series Releases (ASR), Interpretative Releases (IR), Staff Accounting Bulletins (SAB), and EITF Topic D and SEC Observer comments
Expected Cash Flow
*Expected cash flow approach considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted-average, or "expected," future cash flow
Matching Principle
*Expenses are necessarily incurred to generate revenue *In accordance with the matching principles, all expenses incurred to generate a specific amount of revenue in a period matched against that revenue *The matching principle doesn't govern the recognition of losses since they result from unusual events
Expenses (E)
*Expenses are outflows, uses of assets, or the incurrence of liabilities from delivering goods or services as part of normal operations *Operating
Conceptual Framework Underlying Financial Accounting
*FASB has created a conceptual framework (set forth in Statements of Financial Accounting Concepts, or SFAC) that serves as a basis for all FASB pronouncements -SFAC aren't GAAP,but they provide a basis for financial accounting concepts for business and nonbusiness enterprises *FASB and IASB have a joint project to improve and converge their financial reporting frameworks -As phases of this project are completed, the FASB will issue each component of the joint conceptual framework as a chapter in Statement of Financial Accounting Concepts No. 8, Conceptual Framework for Financial Reporting -When the project is completed, the FASB and IASB will share a single Conceptual Framework for Financial Reporting
Form 6-K
*Filed semi-annually by foreign private issuers *Similar to the 10-Q and contains unaudited financial statements, interim period MD&A, and certain disclosures
Form 8-K
*Filed to report major corporate events such as corporate asset acquisitions or disposals, changes in securities and trading markets, changes to accountants or financial statements, and changes in corporate governance or management
SFAC No. 8: Financial Information Provided in General Purpose Financial Reports
*Financial information needed by existing and potential investors, lenders, and other creditors includes information about the resources of the entity, the claims against the entity, and how efficiently and effectively the entity's management and governing board have discharged their responsibilities to use the entity's resources -Meet "informational needs" -Financial information should be presented using the accrual basis of accounting *Existing and potential investors, lenders, and other creditors use financial information to assess the reporting entity's prospects for future net cash inflows to the entity -Such information may be used to estimate the value of the reporting entity
Going Concern Assumption
*For financial accounting, it is presumed (subject to rebuttal by evidence to the contrary) that the entity will continue to operate in the foreseeable future
Foreign Currency Items
*Foreign currency translation adjustments and gains and losses on foreign currency transactions that are designated as (and are effective as) economic hedges of a net investment in a foreign entity are reported as a component of other comprehensive income -Foreign currency translation adjustments remain in other comprehensive income until the sale or liquidation of the investment in the foreign entity
Segment Profit (or Loss) Defined
*Formula: Revenues (for that segment, internal and external) Less: Directly traceable costs Less: Reasonably allocated costs (by CFO) Operating Profit (or loss) (for that segment) (=EBIT)
Selling Expense
*Freight out, salaries and commissions, advertising
Matching of Revenues and Expenses (by quarter)
*General Rule in preparing interim financial statements: Costs and expenses that clearly benefit more than one period should be properly allocated to the periods affected -Revenues should be recognized in the period in which they were earned and realized or realizable -Also, a total for comprehensive income in condensed financial statements of interim periods issued to shareholders shall be reported
Cumulative Effect of Change in Accounting Principle
*General Rule: Reported "net of tax" *Reported on Statement of Retained Earnings *It is the cumulative effect (calculated as of the beginning of of the earliest period presented in the period of implementation of the new method) of a change from one acceptable method of accounting to another ("GAAP to GAAP") because the new method presents the financial information more fairly than the old method -Can't haphazardly switch
Changes in Accounting Principle
*General Rule: Retrospective Application (pretend you've always used new method) *A change in accounting principle is a change in accounting principle from one accounting principle to another acceptable accounting principle (i.e., GAAP to GAAP or IFRS to IFRS) -Non-GAAP to GAAP = error *Example: Cash-basis --> accrual
Items Normally Excluded from Segment Profit (or Loss)
*General corporate revenues *General corporate expenses *Interest expense (except for financial institutions) *Income taxes *Equity in earnings and losses of an unconsolidated subsidiary (i.e., under the equity method) *Gains or losses from discontinued operations *Extraordinary items *Minority interest
Reporting Changes in an Accounting Principle
*General rule: Changes in accounting principle should be recognized by adjusting beginning retained earnings in the earliest period presented for the cumulative effect of the change, and, if prior period financial statements are presented, they should be restated (retrospective application)
International Convergence of Accounting Standards
*Goal: A single set of high-quality, international accounting standards that companies can use for both domestic and cross-border financial reporting *Working at since 2002 *FASB continues to issue US GAAP and IASB continues to issue IFRS with the expectation that over time the 2 sets of standards will become increasingly similar, if not the same *SEC supports the IASB/FASB convergence project
Net Income
*I/S --> Retained Earnings --> Owners' Equity *Step 1 *Includes the following: 1. Income from continuing operations 2. Discontinued operations 3. Extraordinary items
International Accounting Standards Board (IASB)
*IASB established in 2001 as part of the International Financial Reporting Standards (IFRS) Foundation *Purpose: To develop a single set of high-quality, global accounting standards *Has 15 full-time members and 2 part-time members -Auditors, preparers, users, and academics
IASB and Fundamental Assumption
*IASB outlines only 2 fundamental assumptions: 1. Accrual basis accounting 2. Going concern
Revaluation Surplus
*IFRS only *Under, IFRS, revaluation surpluses (gains) recognized when intangible assets and fixed assets are revalued, are also included in other comprehensive income -Revaluation surpluses are not reclassified into net income in subsequent periods, but may be transferred directly to retained earnings when the related asset is used or derecognized
Restatement to Reflect Information for the New Entity (if comparative financial statements are presented)
*If a change in accounting entity occurs in the current year, all previous financial statements that are presented in comparative financial statements along with the current year should be restated to reflect the information for the new reporting entity
Change in Estimate Affecting Future Periods
*If a change in accounting estimate affects several future periods (e.g., a revision of service lives of depreciable assets), the effect on income before extraordinary items, net income, and the related per share information for the current year should be disclosed in the notes to the financial statements -Changes in ordinary accounting estimates (e.g., uncollectible accounts and inventory adjustments) usually made each period do not have to be disclosed unless they are material
Fair Value Objective
*If fair value cannot be determined in the marketplace, the objective must be to obtain an estimate of fair value (i.e., a present value of future cash flows)
Conservatism Principle
*If in doubt when selecting from alternative GAAP methods, the method that is least likely to overstate assets (and revenues/gains) and understate liabilities (and expenses/losses) in the current period should be selected 1. Recognize revenues/gains when the earnings process is complete (or virtually completed) 2. Recognize expenses/losses immediately
Cumulative Effects of a Change
*If non-comparative financial statements are being presented, then the cumulative effect of a change in accounting principle is equal to the difference between the amount of beginning retained earnings in the period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior affected periods -It includes direct effects and only those indirect effects that are entered in the accounting records *If comparative financial statements are being presented, then the cumulative effect is equal to the difference between beginning retained earnings in the first period presented and what retained earnings would have been if the new principle had been applied to all prior periods
75% "Reporting Sufficiency" Test
*If the total of external (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above three tests, until at least 75% of external (consolidated) revenue is included in reportable segments -The practical limit to the number of segments is 10, which isn't a precise limit -Keep adding segments until 75% of external revenue segmented
Full Disclosure Principle
*Important that the user be given information that would make a difference in the decision process but not so much information that the user is impeded in analyzing what is important *Notes "completeness"
Opening IFRS Financial Statements: Asset and Liability Recognition
*In its opening IFRS balance sheet, an entity should recognize all assets and liabilities required by IFRS and should apply IFRS in measuring and classifying all recognized assets and liabilities -Adjustments needed to restate assets and liabilities in conformity with IFRS should be made directly to retained earnings at the date of transition to IFRS
Comprehensive Income
*Includes all differences between beginning equity and ending equity other than transactions with owners (i.e., net income plus other comprehensive income)
Presentation Order of the Major Components of an Income and Retained Earnings Statement (IDEA)
*Income (or Loss) from Continuing Operations *Income (or Loss) from Discontinued Operations *Extraordinary Items *Cumulative Effect of Change in Accounting Principle
Interim Financial Reporting: Income Taxes
*Income tax expense is estimated each quarter *General Rule: Multiply the year-to-date income by the estimated effective tax rate and subtract the result from the provision included in the previous quarter -The estimate of the effective tax rate expected to be applicable for the full fiscal year should reflect all tax planning alternatives including foreign tax rates, percentage depletion, capital gains rate, and anticipated investment tax credits
Investments by Owners
*Increases in assets from transfers of cash, property, or services from owners *Excluded from Comprehensive Income
Gains (G)
*Increases in equity from peripheral transactions and other events except revenue and investments from owners *Selling Price > Book Value *Non-Operating
Financial Accounting Standards Board (FASB)
*Independent full-time organization established in 1973 and has established GAAP since *Through 2009, FASB issued Statements of Financial Accounting Standards (SFAS), FASB Interpretations (FIN), FASB Technical Bulletins (FTB). Emerging Issues Task Force Statements (EITF), FASB Staff Positions, FASB Implementation Guides, and Statements of Financial Accounting Concepts (SFAC) *Has 7 full-time members -Serve 5 year terms and may be reappointed to one additional five-year term -Board members must sever connections with firms of institutions before joining the Board
Income (or Loss) from Continuing Operations
*Individual line items show "gross of tax" (before), then total reported "net of tax" (gross and net of tax) *Income from continuing operations includes operating activities (i.e., revenues, costs of goods sold, selling expenses, and administrative expenses, non-operating activities (e.g., other revenues and gains and other expenses and losses), and income taxes
Revenues (R)
*Inflows, enhancements of assets, or reductions of liabilities from delivering goods or services as a part of normal operations -Recognize revenue at the gross amount (less allowances for returns and discounts given) *Operating
"All Other Segments" Category
*Information about other business activities and operating segments that aren't reportable based on the above criteria should be combined and disclosed in an "all other segments" category
Confirming Value
*Information has confirming value if it provides feedback about evaluations previously made by users
Predictive Value
*Information has predictive value if it can be used by users to predict future outcomes
Timeliness
*Information is available to users in time to be capable of influencing their decisions
Materiality
*Information is material if an omission or misstatement of the information could affect the decisions made by users based on financial information *Entity-specific aspect of relevance *FASB/IASB haven't specified a uniform quantitative threshold for materiality and haven't specified what would be material in specific situations
Comparability (Consistency)
*Information is more useful if it can be compared with similar information about other entities or from other time periods *Enables users to identify similarities and differences among items *Consistency, which is the use of the same methods for the same items either from period to period or across entities, helps to achieve comparability -Current Year vs. Prior Year -Apple vs. Microsoft
Understandability
*Information is understandable if it is classified, characterized, and presented clearly and concisely -Even well-informed and diligent users may need assistance of advisors to understand complex and difficult phenomena
Monetary Unit Assumption
*It is assumed that money is an appropriate basis by which to measure activity -Assumption is that the monetary unit does not change over time; thus, the effects of inflation aren't reflected in the financial statements
Material Unusual or Infrequent Items - Non-operating
*Items of income or loss that are either unusual or infrequent aren't extraordinary (e.g., gain on the sale of a factory building) -If material, these items should be reported as a separate line item as part of income from continuing operations (and not net of tax) -The nature of the item and the financial effects should be disclosed on the face of the income statement or in the footnotes
Accumulated Other Comprehensive Income
*Just like retained earnings *A component of equity that includes the total of other comprehensive income for the period and previous periods -Other comprehensive income for the current period is "closed" to this account, which is reconciled each period similar to the manner in which retained earnings are reconciled *At the end of each accounting period, all components of comprehensive income are closed to the balance sheet -Net income is closed to retained earnings and other comprehensive income is closed to accumulated other comprehensive income
Stockholders' Equity
*Made up of contributed capital Contributed Capital Stock Preferred Stock Common Stock Paid-in Capital in Excess of Par Total Paid-In Capital Internally Generated Retained Earnings Accumulated Other Comprehensive Income (Treasury Stock - Buy back own shares - contra-equity)
XBRL US GAAP Financial Reporting Taxonomy
*Maintained and updated by FASB and Financial Accounting Foundation to reflect changes in US GAAP and SEC financial statement disclosure requirements, as well as changes in common reporting practices
XBRL IFRS Taxonomy
*Maintained by the IFRS Foundation to reflect changes in IFRS disclosure requirements -The development of the IFRS taxonomy is supported by the XBRL Quality Review Team and the XBRL Advisory Council
Components of an Entity (Under IFRS)
*May be: -A separate major line of business or geographical area of operations -A subsidiary acquired exclusively with a view to resale
Components of an Entity (Under US GAAP)
*May be: -An operating segment, -A reportable segment (as those terms are defined in segment reporting) -A reporting unit (as that term is defined in goodwill impairment testing) -A subsidiary -An asset group (a collection of assets to be disposed of together as a group in a single transaction and the liabilities directly associated with those assets that will be transferred in that same transaction
Verifiability
*Means that different knowledgeable and independent observers can reach consensus that a particular depiction is faithfully represented *Does not require complete agreement
Summary of Significant Accounting Policies: Identify and Describe
*Measurement bases used in preparing the financial statements *Accounting principles and methods *Criteria *Policies *Pricing *IFRS requires disclosure of judgments and estimates that management has made in the process of applying accounting policies and that have a significant effect on the financial statements *US GAAP requires disclosure of significant estimates, but doesn't require the disclosure of judgments made in preparing the financial statements
Annual Financial Statements: Disclosure Requirements
*Must be disclosed in the financial statements or notes: 1. Dividends per share and in total for each class of shares 2. Principles of consolidation or combination 3. Assets subject to lien 4. Defaults with respect to any issue of securities or credit agreements if the default or breach existed at balance sheet date and has not been subsequently cured 5. Preferred shares disclosure 6. Restrictions that limit the payment of dividends 7. Significant changes in bonds, mortgages, or similar debt 8. Summarized financial information of subsidiaries not consolidated and 50% or less owned entities 9. Income tax expense 10. Warrants or rights outstanding 11. Related party transactions which affect the financial statements 12. Repurchase and reverse repurchase agreements 13. Accounting policies for derivative instruments
Form 10-K
*Must be filed annually by US registered companies (issuers) -The filing deadline for Form 10-K is 60 days after the end of the fiscal year for large accelerated filers, 75 days after the end of the fiscal year for accelerated filers, and 90 days after the end of the fiscal year for all other registrants -These forms contain financial disclosures, including a summary of financial data, management's discussion and analysis (MD&A), and audited financial statements prepared using US GAAP
Forms 20-F and 40-F
*Must be filed annually by foreign private issuers *Form 40-F is filed by specific Canadian companies registered with the SEC *Form 20-F is filed by other non-US registrants *Contain financial disclosures, including a summary of financial data, management's discussion and analysis (MD&A), and audited financial statements
Form 10-Q
*Must be filed quarterly by US registered companies (issuers) *The filing deadline for Form 10-Q is 40 days after the end of the fiscal quarter for large accelerated filers and accelerated filers, and 45 days after the end of the fiscal quarter for all other registrants *This form contains unaudited financial statements prepared using US GAAP, interim period MD&A, and certain disclosures
Required Disclosures for all Public Enterprises
*Must report information about a company's: -Operating segments (annual and interim) -Products and services -Geographic areas -Major customers
Comprehensive Income ("PUFE likes to revalue his income")
*Non-owner transactions *The change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners *Net income (per I/S) + Other Comprehensive Income (PUFE R) = Comprehensive Income
Continuing Operations
*Normal Operations + Non-Operating
Related Party Disclosures
*Not arms-length transactions *Both US GAAP and IFRS require the disclosure of related party transactions *Related parties include: -Affiliates of an entity -Entities accounted for using the equity method (investments in affiliates and joint ventures) -Parent or subsidiary entities or subsidiaries of a common parent -Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management -Management of an entity and their immediate family members -Owners of more than 10% of the voting interest of an entity (principal owners) and their immediate family members *Principal owners are not mentioned as related parties in IFRS
Not an Operating Segment
*Not every part of an enterprise is necessarily an operating segment or part of an operating segment 1. Corporate Headquarters Not an Operating Segment -A corporate headquarters or certain functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the enterprise and would, therefore, not be operating segments 2. Pension Plan Not an Operating Segment -An enterprise's pension and other post-retirement benefit plans are not considered to be operating segments
Interim Financial Reporting
*Not required under US GAAP or IFRS, but both provide guidance to be used when interim information is presented -In the US, interim reporting is generally concerned with the quarterly reports that public companies must file with the SEC -Generally accepted accounting principles that were used in the most recent annual report of an enterprise should be applied to interim financial statements of the current year, unless a change in accounting principle is adopted in the current year *Timeliness is emphasized over reliability (unaudited) *An integral part of annual financial statements *IFRS requires that interim financial statements be prepared using the same principles and practices used in preparation of the most recent annual financial statements *US GAAP allows certain principles and practices to be modified when preparing the interim financial statements
Enhancing Qualitative Characteristics ("Compare and Verify in Time to Understand")
*Not the fundamental qualitative characteristics, but enhance the fundamental qualitative characteristics *These characteristics can be used to determine how a phenomena should be depicted if 2 ways are equally relevant and faithfully represented 1. Comparability 2. Verifiability 3. Timeliness 4. Understandability -All enhance the usefulness of information that is relevant and faithfully represented
SFAC No. 8, "Conceptual Framework for Financial Reporting - Chapter 1: The Objective of General Purpose Financial Reporting"
*Objective: Disclose the entity's performance *Objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to the primary users of general purpose financial reports in making decisions about providing resources to reporting entity 1. Primary Users 2. Financial Information Provided in General Purpose Financial Reports
General & Administrative
*Officer's salaries, accounting and legal, insurance
Reportable Segment
*Operating segments of an enterprise that meet the criteria for separate reporting *Those operating segments that exhibit similar long-term financial performance may be aggregated into a single operating segment if (i) aggregation is consistent with the objective and principles of segment reporting, (ii) the segments have similar economic characteristics, and (iii) the segments are similar in: 1. The nature of the products and services 2. The nature of the production processes 3. The type or class of customer for their products and services 4. The methods used to distribute their products or provide their services, and 5. If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities
SFAC No. 4, "Objectives of Financial Reporting by Nonbusiness Organizations"
*Outlines the characteristics that distinguish nonbusiness organizations from business organizations, describes the users of the financial information provided by nonbusiness organizations, and sets forth the objectives of external financial reporting by nonbusiness organizations
Components of an Entity
*Part of an entity (the lowest level) for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity
Accounting Principles Board (APB)
*Part-time committee of the AICPA *Issued Accounting Principles Board Opinions (APBO) and APB Interpretations -Determined GAAP from 1959-1973
SFAC No. 8: Primary Users
*Primary users of general purpose financial reports are existing and potential investors, lenders, and other creditors -External (outside organization)
Assets
*Probable future economic benefits to be received by the company as a result of past transactions or events -Valuation accounts may be used to show reduction to or increases in an asset that reflect adjustments beyond the historical cost or carrying amount of the asset *Balance Sheet
Liabilities
*Probable future sacrifices of economic benefits arising from a present obligation of the company to transfer assets or provide services to other entities in the future as a result of past transactions or events *Balance Sheet
Changes in Accounting Estimate
*Prospective (i.e., implement in the current period and continue in future periods). -Does not affect previous periods *Not an error - do not restate prior periods *Occurs when it is determined that the estimate previously used by the company is incorrect
SFAC No. 7, "Using Cash Flow Information and Present Value in Accounting Measurements"
*Provides a framework for accountants to employ when using future cash flows as a measurement basis for assets and liabilities *Provides a set of principles that govern the use of present value, especially when the timing and/or amount of future cash flows are uncertain *PV= (FCF/Disc. Rate) 1. Measurements Based on Future Cash Flows Only 2. 5 Elements of Present Value Measurement 3. Fair Value Objective 4. Present Value Computations 5. Liability Measurement Considers Additional Factors 6. Changes in Estimated Cash Flows Using the Catch-Up Approach
International Financial Reporting Interpretations Committee (IFRIC)
*Provides guidance on newly identified financial reporting issues not addressed in the IFRSs and assists the IASB in achieving international convergence of accounting standards *Established in 2002
Inventory Cost
*Purchase price, freight in (shipped to us)
Income Statement
*Purpose: To provide information about the uses of funds in the income process (i.e., expenses), the uses of funds that will never be used to earn income (i.e., losses), the sources of funds created by those expenses (i.e., revenues), and the sources of funds not associated with the earnings process (i.e., gains) *Performance over a "period of time"
Types of Items Included in Results of Discontinued Operations (for that period)
*Results of operations of the component (Revenues and expenses for that component) *Gain or loss on disposal of the component *Impairment loss (and subsequent increases in fair value) of the component (CV vs. NRV) -Initial and Subsequent Impairment Losses -Subsequent Increases in Fair Value
Statement of Retained Earnings
*Purpose: To reconcile the beginning balance of retained earnings with the ending balance. It is usually presented immediately following the income statement Beginning balance (as previously reported) Prior period adjustment (Note 5) (Net income overstated) Add: Income tax benefit (owe less tax) Cumulative effect of accounting change (NI understated) Less: Income tax effect (owe more tax) Beginning balance (restated) Add: Net Income Less: Dividends Cash dividend declared on preferred stock Cash dividend declared on common stock Property dividend declared on common stock Stock dividend declared on common stock Ending Balance (part of stockholders' equity on B/S
Present Value Computations: Expected Cash Flow Approach
*Rather than focusing on the interest rate selection, this approach uses only the risk-free rate of return as the discount rate and then turns its attention to the expected future cash flows, considering uncertainties (e.g., default risk) as adjustments to the future cash flows
SFAC No. 5: Fundamental Recognition Criteria
*Recognition is the process of formally recording or incorporating an item in the financial statements of an entity and classifying it as asset, liability, equity, revenue, or expense -Definitions -Measurability -Relevance -Reliability
Fundamental Qualitative Characteristics
*Relevance *Faithful Representation -Both characteristics must be present for financial information to be useful
Relevance ("Passing Confirms Money")
*Relevant if it is capable of making a difference in the decisions made by users 1. Predictive Value (P) 2. Confirming Value (C) 3. Materiality (M)
Remaining Notes to the Financial Statements
*Remaining notes contain all other information relevant to decision makers (e.g., investors, creditors, etc) -These notes are used to disclose facts not presented in either the body of the financial statements or in the "Summary of Significant Accounting Policies" *Examples: -Changes in stockholders' equity including capital stock, paid-in capital, retained earnings, treasury stock, stock dividends and other capital changes -Required marketable securities disclosure including carrying value and gross unrealized gains and losses -Contingency losses -Contractual obligations (off B/S financing - operating leases), including restrictions on specific assets or liabilities -Pension plan description -Post-balance sheet disclosures of certain events that occurred before the financial statements were issued -Discontinued Segment -Outside ordinary course of business
Income (or Loss) from Discontinued Operations
*Reported "net of tax"
Revenues
*Reported at their gross amounts (less allowance for returns and discounts given) *Gross Concept
Gains
*Reported at their net amounts (i.e., proceeds less net book value) -A gain is the recognition of an asset either not in the ordinary course of business (e.g., gains on the sale of a fixed asset) or without the incurrence of an expense (e.g., finding gold on the company's property) *Net Concept
Losses
*Reported at their net amounts (i.e., proceeds less net book value) -A loss is cost expiration either not in the ordinary course of business (e.g., loss on the sale of investment assets) or without the generation of revenue (e.g., abandonment)
Discontinued Operations
*Reported separately from continuing operations in the income statement *The (normal) loss from discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and a gain/loss on disposal -Impairment (carrying value too high) -Gain/loss on disposal: Difference between selling price and carrying value -All of these amounts are included in discontinued operations in the period in which they occur (not before) *Once have plan to sell --> Discontinued
Extraordinary Items
*Reported/Presented net of tax and include items that are unusual in nature and infrequent in occurrence
Multiple Step Income Statement
*Reports operating revenues and expenses separately from non-operating revenues and expenses and other gains and losses -Enhanced user information Net Sales (including goods, services, and rentals) Cost of Sales (including goods, services, and rentals) Gross margin (Sub-Total) Selling expenses General and administrative expenses Depreciation expense Income (loss) from operations (Sub-Total) Other revenues and gains: Interest income Gain on sale of fixed assets (e.g., equipment) Other income Other expenses and losses: Interest expense Loss on sale of fixed assets (e.g., equipment) Income before unusual items and income tax Unusual or infrequent items Loss on sale of available-for-sale securities Income before income tax (Sub-Total) Provision for income taxes: Current Deferred Net Income (or "income from continuing operations")
Forms 3, 4, and 5
*Required to be filed by directors, officers, or beneficial owners of more than 10% of a class of equity securities of a registered company
SEC Interactive Data Rule
*Requires US public companies and foreign private issuers that use US GAAP, as well as foreign private issuers that use IFRS, to present financial statements and any applicable financial statements schedules in an exhibit prepared using XBRL -This exhibit is required with the filers' SEC registration statements, quarterly and annual reports, and reports 6-K and 8-K containing revised or updated financial statements
Error Correction (prior period adjustment)
*Restate *Error corrections include: -Corrections of errors in recognition, measurement, presentation, or disclosure in financial statements resulting from mathematical mistakes, mistakes in he application of US GAAP/IFRS, or oversight or misuse of facts that existed at the time the financial statements were prepared -Changes from a non-GAAP/IFRS method of accounting to a GAAP/IFRS method of accounting (e.g., cash basis to accrual basis), which is a specific correction of an error
Report in the Period Disposed of or Held for Sale
*Results of discontinued operations of a component are reported in discontinued operations (for the current period and for all prior periods presented) in the period the component is either disposed of or is held for sale *Results of subsequent operations of a component classified as held for sale are reported in discontinued operations in the period in which they occur
Primary Characteristics of Objective of Financial Reporting
1) Relevance: Predictive Value Confirmatory Value Materiality 2) Faithful Representation: Completeness Neutrality Free From Error Comparability relates to both
Changes in Accounting Entity
*Retrospective application - Restate prior years *Under US GAAP, a change in accounting entity occurs when the entity being reported on has changed composition -Examples include consolidated or combined financial statements that are presented in place of statements of the individual companies and changes in the companies included in the consolidated or combined financial statements for year to year 1. Restatement to Reflect Information for the New Entity 2. Full Disclosure *IFRS does not include the concept of a change in accounting entity
10% "Size" Test
*Revenue -A segment meets the size test if its reported revenue, including both sales to external customers and intersegment sales or transfers (but excluding interest income on advances and loans to other segments), is 10% or more of the combined revenue, internal and external, of all operating segments *Reported Profit or Loss -A segment meets the size test if the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of 1. The combined reported profit of all operating segments that did not report a loss 2. The combined reported loss of all operating segments that did report a loss *Assets -A segment meets the size test if its assets are 10% or more of the combined assets of all operating segments -The assets of a segment are those assets included in the measure of the segment's assets that are reviewed by the chief operating decision maker
Accrual Accounting
*Revenues recognized when they are earned and expenses are recognized in same period as the related revenue (matching or using a systematic and rational allocation or expensing in the period in which they expire), not necessarily in the period in which the cash is received or expended by the company *Record revenue and/or expense without exchange of cash
Other Comprehensive Income (PUFE R - "direct to equity")
*Revenues, expenses, gains, and losses that are included in comprehensive income but excluded from net income under US GAAP and/or IFRS 1. Pension Adjustments 2. Unrealized Gains and Losses 3. Foreign Currency Items 4. Effective Portion of Cash Flow Hedges 5. Revaluation Surplus
XBRL (Extensible Business Reporting Language)
*Royalty-free, open specification for software that uses XML (Extensible Markup Language) data tags to describe financial information for business and financial reporting *XBRL is a next-generation language after HTML -HTML tells computers how to display text -XML and XBRL tell computers how to interpret the context of the text
Standard-Setting Bodies in the US
*SEC has the legal authority to establish US GAAP *In most instances, SEC has allowed the accounting profession to establish GAAP and self-regulate Bodies: -Securities and Exchange Commission (SEC) -Committee on Accounting Procedure (CAP) -Accounting Principles Board (APB) -Financial Accounting Standards Board (FASB)
Segment Reporting: Scope
*Segment reporting applies to public companies only -It doesn't apply to not-for-profit organizations, nonpublic companies, or separate financial statements of members of a consolidated group if both the separate company statements and the consolidated or combined financial statements are included in the same financial report
SFAC No. 5, "Recognition and Measurement in the Financial Statements"
*Sets forth the recognition criteria and guidance on what and when information should be incorporated in the financial statements -Full Set of Financial Statements -Fundamental Recognition Criteria -Measurement Attributes for Assets and Liabilities -Fundamental Assumptions
SFAC No. 5: Full Set of Financial Statements
*Statement of financial position (the balance sheet) (F1) *Statement of earnings (the income statement) (F1) *Statement of comprehensive income (F1) *Statement of cash flows (F7) *Statement of changes in owners' equity (F7)
Industry Specific Taxonomies
*Taxonomies have been created to accommodate industry specific financial reporting needs -Industry specific taxonomies exist for the commercial and industrial, banking and savings, real estate, insurance, and broker/dealer industries
Regulation S-X
*The SEC sets forth the "form and content" of and requirements for interim and annual financial statements to be filed with the SEC *Key Provisions: 1. Review Requirement: Interim financial statements filed with the SEC must be reviewed by an independent public accountant and the review report must be filed with the financial statements 2. Statements and Periods Presented -Balance Sheets -Income Statements -Statements of cash flows 3. Adjustments for Fair Presentation -Interim financial statements should reflect adjustments necessary to fairly state the results of the interim period and a statement to that effect should be included in the notes to the financial statements -Adjustments include estimated provisions for bonus and profit sharing arrangements that are normally determined or settled at year-end. If all such adjustments are of a normal recurring nature, a statement should be made to that effect -The financial statements should include a detailed description of the nature and amount of adjustments that aren't normal recurring adjustments -Accruals
Reporting Issues: Income Tax Expense or Benefit
*The amount of income tax expense or benefit allocated to each component of other comprehensive income is disclosed either on the face of the statement in which those components are displayed or in the notes to the financial statements *Option
The Cost Constraint
*The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information
Examples of Non-Extraordinary Items
*The following gains/losses are not extraordinary (they are presented as a separate component of "continuing operations" - thus, gross - before tax) 1. Gain or loss from sale or abandonment of property, plant, or equipment used in the business 2. Large write-downs or write-offs of: -Receivables -Inventories -Intangibles (including goodwill) -Long-term securities (permanent decline) 3. Gain or loss from foreign currency transactions or translation, whether from major devaluations or otherwise (provided these occur on a regular basis as part of normal business operations) 4. Losses from major strike by employees 5. Long-term debt extinguishments that are part of a common management strategy (i.e., not unusual and infrequent)
Error Correction Accounting (IFRS)
*Under IFRS, when it is impracticable to determine either the period-specific effect or the cumulative effect of an error the entity is required to restate information prospectively from the earliest date that is practicable *US GAAP does not have an impracticality exemption for error corrections
Unrealized Gains and Losses (available for sale securities)
*The following types of unrealized gains and losses on certain investments in debt and equity securities are reported as components of other comprehensive income until the securities are sold -Unrealized holding gains and losses on "available-for-sale securities" -Unrealized holding gains and losses that result from a debt security being transferred into the "available-for-sale" category from "held-to-maturity" -Subsequent decreases or increases in thefair value of "available-for-sale" securities previously written down as impaired
Liability Measurement
*The liability should be measured at fair value -The liability may be adjusted in future periods as a result of revisions to the timing of or estimated cash flows from the exit or disposal activity -Revisions are accounted for prospectively (change in estimate)
Segment Reporting
*The objective of segment reporting is to provide information on the business activities and the economic environment of a company to help users of the financial statements: -Better understand the enterprise's performance -Better assess its prospects for future net cash flows, and -Make more informed judgments about the enterprise as a whole *In general, an enterprise is required to disclose segment profit or loss, segment assets, and certain related items, but is not required to report segment cash flow *IFRS requires the disclosure of segment liabilities if such a measure is regularly provided to the chief operating decision maker *US GAAP doesn't require the disclosure of segment liabilities
Equity (of net assets)
*The residual interest in the assets of the company that remains after deducting its liabilities *Balance Sheet
Types of Entities to be Considered
*The results of operations of a component of an entity will be reported in discontinued operations if either the component: 1. Has been disposed of, or 2. Is classified as held for sale
Present Value Computations: Traditional Approach
*The traditional approach (i.e., one discount rate used to take the present value of a future cash flow stream) to present value computations may be used when assets and liabilities have contractual (i.e., fixed) cash flows that aren't expected to vary -In this approach, interest rate selection is paramount -PV of Bonds - Scheduled known payments
Freedom from Error
*There are no errors in the selection or application of the process used to produce reported financial information and that there are no errors or omissions in the descriptions of economic phenomena *Freedom from error doesn't require perfect accuracy
SFAC No. 1, "Objectives of Financial Reporting by Business Enterprises"
*This statement was replaced by Chapter 1 of SFAC No. 8
SFAC No. 2, "Qualitative Characteristics of Accounting Information"
*This statement was replaced by Chapter 3 of SFAC No. 8
SFAC No. 3, "Elements of Financial Statements of a Business"
*This statement was replaced by SFAC No. 6
Impracticable to Estimate
*To prepare a change in accounting principle handled retrospectively, the amount of the cumulative effect adjustment must be calculated as of the beginning of the first period presented -If it is considered "impractical" to accurately calculate this cumulative effect adjustment, then the change is handled prospectively (like a change in estimate) -Example: Change in inventory cost flow assumption to LIFO (under US GAAP) -Since a cumulative effect adjustment to LIFO would require the reestablishment and recalculation of old inventory layers, it is considered impractical to try and rebuild those old cost layers -This change is therefore handled prospectively -The beginning inventory of the year of change is the first LIFO layer. Additional LIFO layers are added on from that point forward
Single Step Income Statement
*Total expenses (including income tax expense) are subtracted from total revenues Revenues and other items: Sale of goods Sale of services Interest income Rental income Gain on sale of fixed assets (e.g., equipment) Other income Total Revenues and other items Expenses and other items: Cost of goods sold (including freight in) Cost of services sold Cost of rental income Selling expenses (including freight out) General and administrative expenses (including property tax, insurance, officers' salaries, and legal expense) Interest expense Depreciation expense Loss on sale of fixed assets (e.g., equipment) Loss on sale of available-for-sale securities Income tax expense (provision for income tax) Total expenses and other items Net Income (or income from continuing operations, if necessary)
Extraordinary Items ("E")
*Transactions and other events that are: 1. Material in nature, 2. Of a character significantly different from the typical or customary business activities (AND) 3. Not expected to recur in the foreseeable future (infrequent), and 4. Not normally considered in evaluating the ordinary operating results of an enterprise *Unusual and Infrequent
Extraordinary Items (IFRS)
*Under IFRS, an entity can't present any item of income or expense as extraordinary on the statement of comprehensive income or the separate income statement (if presented), or in the notes to the financial statements
Held for Sale: IFRS vs GAAP
*Under IFRS, before a component can be classified as held for sale, the individual assets and liabilities of the component must be measured in accordance with applicable standards and any resulting gains and losses must be recognized -After classification as held for sale, the component is reported at the lower of carrying value and fair value less costs to sell *US GAAP doesn't require remeasurement of individual assets and liabilities before classification as held for sale, but the classification of a component as held for sale does trigger an impairment analysis of the component
IFRS and Changes in Accounting Principle
*Under IFRS, when an entity disclosing comparative information applies an accounting principle retroactively or makes a retrospective restatement of items in the financial statements, the entity must (at a minimum) present 3 balance sheets (end of current period, end of prior period, and beginning of prior period) and 2 of each other financial statement (current period and prior period) -The cumulative effect adjustment would be shown as an adjustment of the beginning retained earnings on the balance sheet for the beginning of the prior period *US GAAP does not have a 3 balance sheet requirement
Development-Stage Enterprises (US GAAP) (Start-ups, pioneering development)
*Under US GAAP, a development-stage enterprise is one in which either: -Principal operations haven't yet commenced, or -Principal operations have generated an insignificant amount of revenue (or a loss) *During the development stage, a company devotes most of its activities and resources toward establishing the business -Start-up, organizational costs - expense immediately under GAAP (conservatism)
Pension Adjustments
*Under US GAAP, changes in the funded status of a pension plan due to gains or losses, prior service costs, and net transition assets or obligations must be recognized in other comprehensive income in the year the changes occur -All gains or losses, prior service costs, and transition assets or obligations are included in other comprehensive income until recognized as a component of net periodic benefit cost *Under IFRS, certain actuarial gains and losses may be included in other comprehensive income -These gains and losses are not reclassified to net income in subsequent periods
Financial Statement Reporting: Comprehensive Income
*Under US GAAP, comprehensive income may be presented in: 1. A single statement of comprehensive income (single-statement approach) (US and IFRS) 2. An income statement followed by a separate statement of comprehensive income that begins with net income (2-statement approach) (US and IFRS) 3. A statement of changes in equity (ending soon; US only)
Segment Reporting: Requirements
*Use same accounting principles as main financial statements -Consistency -The required financial statement information is essentially a disaggregation of the entity's regular financial statements -The accounting principles used in preparing the financial statements should be used for the segment information -Segment information presented must be reconciled to the related aggregate amounts in the financial statements *Intercompany Transactions Not Eliminated for Reporting -It is important to remember that transactions between the segments of an enterprise aren't eliminated in a consolidation between the parent company and subsidiareis
Uses of the Income Statement
*Useful in determining profitability, value for investment purposes, and credit worthiness -Useful in predicting information about future cash flows (e.g., the amounts, timing, and uncertainty of cash flows) based on past performance
SFAC No. 5: Measurement Attributes for Assets and Liabilities
*Variety of ways -Historical Cost (PP&E) -Current Cost (Inventory) -Net realizable value (A/R) -Current market value (marketable securities) -Present value of future cash flows (Long-term debt "bonds")
Committee on Accounting Procedure (CAP)
*Was a part-time committee of the American Institute of Certified Public Accountants (AICPA) that promulgated Accounting Research Bulletins (ARB) -Determined GAAP from 1939-1959
International Financial Reporting Standards (IFRS)
*When IASB created, it adopted the International Accounting Standards (IAS) (predecessor to IASB) *The term International Financial Reporting Standards includes IFRSs, IASs, and Interpretations developed by the IFRIC and the former SIC *Single set of global standards want everyone to adopt
Securities Offering Registration Statements
*When a company issues new securities, it is required to submit a registration statement to the SEC that includes: 1. Disclosures about the securities being offered for sale 2. The relationship of the new securities to the company's other securities 3. Information similar to that filed in the annual filing 4. Audited financial statements 5. A description of business risk factors
adjunct=
+
Statement of Financial Position
+ Assets - Liab. = Net assets (equity) assets with or without restrictions Disclosures: relevant info about maturities and liquidity - qualitative info assessing liquidity - quantitative info that discloses the avail of liquid resources
Statement of Changes in Net Worth For the Year Beginning 1/1/X1=
+ Increases in Estimated Values of Assets - Decreases in Estimated Values of Assets - Increases in Estimated Amounts of Liabilities + Decreases in Estimated Amounts of Liabilities = Net Worth 12/31/X1
contra=
-
Held-to-maturity securities
- CF from investing - amortized cost (FMV is distractor info) - holding it for long term. current or non current Cash flow: investing
required disclosure
- aggregrate FV - gross unrealized holding GL - amortized cost basis - information about contractual maturities of debt securities. - not diversified risk
declining balance depreciation
- asset is subject to rapid obsolscences Salvage value is ignored in calculation of annual exp 2 / N = constate rate of depreciation 10 yr asset = 2/10 =20% each year * NBV do not go below salvage value and last year NBV = salvage value
debt securities reported at FV (TS and AFS)
- changes in the FV result in unrealized gains and losses. - Unrealized TS, included in earnings unrealized ... Valuation account (contra asset) - unrealized GL AFS same entry but it goes directly to equity.
controlling interest
- investor owns more than 50 % of a subsidiary
Investments in Equity Securities
- preferred stock - common stock no significant influence: TS significant influence - equity control - consolidate
FV levels
- price that would be received to sell an asset or paid to transfer liab. Market approach: uses prices / info from market transactions using comparable assets. Income Aprroach: converts future amounts, including cash flows to earnings Cost approach: current replacement costs Level 1: active markets for identical assets, most reliable Level 2: similar asset in an active market or identical/ similar in a not active market Level 3: unobservable inputs, assumptions based on best available information.
accounting for financial instruments under IFRS
- single model: all types of financial assets, including chose that contain embedded deriavtives. debt instruments - FVPL (TS), FVOCI (AFS), HTM equity instruments have no significant influence. use FVPL (TS) or FVOCI (AFS, unlike U.S.)
direct method required disclosures
- the amount of income taxes paid - the major classes of gross cash receiots and gross cash payments - a reconciliation of net income to net cash flow from operations
SEC reporting requirements. Issuers
- when issuing securities, submit statement
private purpose trust
-not general public use (designated fund for reporting all other trust arrangements under which principal and income are for the benefit of one of the following: specific individ., private organizations, other gov't) Revenue (addition) - assume that a principal of a private purpose trust fund is invested and the income received is transferred to a private individual. Deduction AP capital gains / losses are adjustments to income/expense
Jordan Co. had the following gains during the current period: Gain on disposal of a material operating segment $500,000 Foreign currency translation gain 100,000 What amount of gain from continuing operations should be presented on Jordan's income statement for the current period?
0
Lin Co., a distributor of machinery, bought a machine from the manufacturer in November for $10,000. On December 30, Lin sold this machine to Zee Hardware for $15,000, under the following terms: 2% discount if paid within 30 days, 1% discount if paid after 30 days but within 60 days, or payable in full within 90 days if not paid within the discount periods. However, Zee had the right to return this machine to Lin if Zee was unable to resell the machine before expiration of the 90-day payment period, in which case Zee's obligation to Lin would be canceled. Based on its past experience, Lin concludes that it is probable that (1) Zee will not be able to sell the machine and (2) it will be returned. In Lin's net sales for the year ended December 31, how much should be included for the sale to Zee?
0
Paper Co. had net income of $70,000 during the year. The dividend payment was $10,000. The following information is available: Mortgage repayment $20,000 Available‐for‐sale securities purchased 10,000 increase Bonds payable‐issued 50,000 increase Inventory 40,000 increase Accounts payable 30,000 decrease What amount should Paper report as net cash provided by operating activities in its Statement of Cash Flows for the year? $0 $10,000 $20,000 $30,000
0 Net income ‐ increase in inventory ‐ decrease in accounts payable $70.000 ‐ $40 000 ‐ $30 000 = $0
% of interest owned of a company
0 - 20 FV 20 - 50 Equity method 50 - 100 consolidate (acquisition method)
Redwood Co.'s financial statements had the following information at year end: Cash $ 60,000 Accounts receivable 180,000 Allowance for uncollectible accounts 8,000 Inventory 240,000 Short‐term marketable securities 90,000 Prepaid rent 18,000 Current liabilities 400,000 Long‐term debt 220,000 What was Redwood's quick ratio? 0.81 to 1 0.83 to 1 0.94 to 1 1.46 to 1
0.81 to 1 60000+(180000-8000 deduct allowance) +90000=322k 322k/400k=.81
Periodic inventory system
1 JE at the time of sale - quantity of inventory is determined only by physical count usually at least annually. - The actually COGS for the period is determined after each physical inventory by squeezing the diff. Beg. Inv : xxxx + purchases xxxx = COG Avail for sale: xxxx - ending inventory (physical count) xxxxx = COGS Purchase = Purchases. Xxxx Cash. Xxxxx
list the steps of developing international accounting standards:
1) add items to agenda; 2) discuss issue; 3) publish discussion paper if topic is difficult; 4) prepare and vote on the Exposure Draft 5) Issue the ED 6) analyze the comments on the ED 7) debate the issue at hand
what are some examples of simplified recognition and measurement for small & medium sized entities (SMEs) in IFRS?
1) goodwill is amortized 2) all R&D is expensed 3) categories of investment reduced 4) less prior year data required for first year adoption
in order to have commercial substance
1) the risk, timing, and amount of the expected future cash flows from the asset transferred differs significantly from the risk, timing and amount of the expected future cash flows from the asset received. 2) the entity specific value of the asset received differs significantly from the asset transferred.
The following financial ratios and calculations were based on information from Kohl Co.'s financial statements for the current year. Accounts receivable turnover Ten times during the year Total assets turnover Two times during the year Average receivables during the year $200,000 What were Kohl's average total assets for the year? $2,000,000 $1,000,000 $400,000 $200,000
1,000,000 Correct! From the given information, (asset turnover) = 2 = sales/(average total assets). (AR turnover) = 10 = sales/(average AR). Therefore, (average total assets) are 5 times (average AR). (average total assets) = 5(average AR) = 5($200,000) = $1,000,000.
The estimated values of Lane's personal assets on December 31, 20X0, totaled $1,000,000 with tax bases aggregating $600,000. Included in those assets was a vested interest in a deferred profit‐sharing plan with a current value of $80,000 and a tax basis of $70,000. The estimated current amounts of Lane's personal liabilities equaled their tax bases on December 31, 20X0. Lane's 20X0 effective income tax rate was 30%. In Lane's personal statement of financial condition on December 31, 20X0, what amount should be provided for estimated income taxes relating to the excess of current values over tax bases? $120,000 $117,000 $3,000 $0
1,000,000 total personal assets - 600,000 tax bases = 400,000 * 30% =120,000= estimated tax liability
The following trial balance of Trey Co. at December 31, 2005 has been adjusted except for income tax expense. Dr. Cr. Cash $550,000 Accounts Receivable, net 1,650,000 Prepaid taxes 300,000 Accounts payable $ 120,000 Common stock 500,000 Additional paid‐in capital 680,000 Retained earnings 630,000 Foreign currency translation adjustment430,000 Revenues 3,600,000 Expenses 2,600,000 __________ $5,530,000 $5,530,000 Additional information: During 2005, estimated tax payments of $300,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between the financial statement and the income tax income, and Trey's tax rate is 30%. Included in accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payments in equal, semiannual installments of $125,000 every April 1 and October 1. In Trey's December 31, 2005 Balance Sheet, what amount should be reported as total current assets? $1,950,000 $2,200,000 $2,250,000 $2,500,000
1,950,000 $2,500,000 ($550,000+$1,650,000+$300,000) =$1,950,000 ($2,500,000‐$300,000‐$250,000)--> semi annual installments of 125000 each (250000) 300,000 income tax expense and the 250,00 from AR is not current assets and needed to be subtracted from the original 2,500,000
Characteristics of Nonbusiness Organizations
1. A significant portion of their resources come from contributions and grants 2. Their operating purposes are other than to provide goods or services for profit 3. They lack ownership interests that can be sold, transferred, or redeemed, or that allow a claim on resources upon liquidation
component of an entity
A part of an entity (the lowest level) for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity.
what is the accounting cycle?
1. Analyze relevant source documents (e.g., sales invoices) and record journal entries in a journal, a temporary listing of accounts affected and the amount by which they are to be changed by transaction, event, or adjustment. 2. Post (distribute) the information from the journal to the accounts in the ledger, on a periodic basis. Only after posting, the account balances are updated. 3. Record adjusting journal entries at the end of the accounting period. These journal entries record changes in resources and obligations not signaled by a new transaction or event. Examples include accrual of wages expense from the last payday to the end of the fiscal period, expiration of prepaids, and recognition of estimated expenses such as depreciation and warranty expense. These journal entries are also posted to the accounts. 4. Prepare trial balances. Some firms prepare a trial balance, which is a test of the equality of the sum of debit account balances and credit account balances, before and after adjusting journal entries. A trial balance is a quick test for the presence of an error in recording or posting. 5. Prepare the income statement, balance sheet, and statement of cash flows (often in that order). The first two are prepared directly from the ledger accounts or trial balance; the cash flow statement requires additional analysis. 6. Close the temporary account balances (revenues, expenses, gains, losses) setting them to zero, and transfer the net income amount to retained earnings.
Requirements for Annual Financial Statements
1. Audit Requirement 2. Periods Presented -Balance sheets for the 2 most recent fiscal years and statements of income, changes in owners' equity, and cash flows for each of the 3 fiscal years preceding the date of the most recent audited balance sheet -IFRS requires, at a minimum, 2 balance sheets, 2 statements of comprehensive income (and net income, if using the 2-statement approach), 2 statements of changes in equity, 2 statements of cash flows and related notes 3. Disclosure Requirements
Accounting Changes
1. Changes in accounting estimate (prospective) 2. Changes in accounting principle (general rule: retrospective), and 3. Changes in accounting entity (restate) *Error corrections are not considered accounting changes
Events Resulting in Estimate Changes
1. Changes in the lives of fixed assets 2. Adjustments of year-end accrual of officers' salaries and/or bonuses 3. Write-downs of obsolete inventory 4. Material nonrecurring IRS adjustments 5. Settlement of litigation 6. Changes in accounting principle that are inseparable from a change in estimate (e.g., a change from the installment method to immediate recognition method because uncollectible accounts can now be estimated) *Affects current and future income from continuing operations (prospective definition)
Enhancing qualitative characteristics
1. Comparability 2. Verifiability 3. Timeliness 4. Understandability
Authoritative Literature in Codification: FEDPRIA
1. FASB -Statements of Financial Accounting Standards -Interpretations -Technical Bulletins -Staff Positions -Staff Implementation Guides -Statement No. 138 Examples 2. Emerging Issues Task Force (EITF) Abstracts and Topic D 3. Derivative Implementation Group Issues 4. Accounting Principles Board Opinions 5. Accounting Research Bulletins 6. Accounting Interpretations 7. AICPA -Statements of Position -Auditing and Accounting Guides (incremental accounting guidance only -Practice Bulletins -Technical Inquiry Service (for software revenue recognition)
cash paid for purchases + Ending A/P - Beginning A/P - Ending inventory + Beginning inventory = Cost of goods sold
Converting cash paid for purchases to cost of goods sold
Steps to Apply the Fundamental Qualitative Characteristics
1. Identify the phenomena that has the potential to be useful to the users of a reporting entity's financial information -What's issue/transaction? 2. Identify the types of information about the phenomena that would be most relevant -What would be relevant? 3. Determine whether the information is available and can be faithfully represented -Is information available yet? Can it be measured yet? *If information available and can be faithfully represented, then the fundamental qualitative characteristics have been satisfied. If not, the process is repeated with the next most relevant type of information
Objectives of Financial Reporting of Nonbusiness Organizations
1. Information useful in making resource allocation decisions 2. Information useful in assessing services and the ability to provide services 3. Information useful in assessing management stewardship and performance 4. Information about economic resources, obligations, and net resources, organization performance, the nature of and relationship between inflows and outflows, service efforts and accomplishments, and liquidity
Users of Financial Information of Nonbusiness Organizations
1. Resources providers, including lenders, suppliers, employees, members, contributors, and taxpayers 2. Constituents who use and benefit from the services provided by nonbusiness organizations 3.Governing and oversight bodies who are responsible for setting policies and for overseeing and evaluating the managers of nonbusiness organizations 4. Managers who are responsible for carrying out the policy mandates of the governing bodies and managing the day-to-day operations of the nonbusiness organization
Notes to Financial Statements
1. Summary of Significant Accounting Policies 2. Remaining Notes to the Financial Statements 3. Related Party Disclosures
Examples of Extraordinary Items
1. The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood 2. An expropriation of a plant by the government 3. A prohibition of a product line by a newly enacted law or regulation 4. Certain gains or losses from extinguishment of long-term debt, provided they aren't part of the entity's recurring operations and, thus, meet the criteria of unusual and infrequent -Must specifically tell you --> Specify/Indicate
cash basis revenue +ending A/R -Beginning A/R - Ending unearned revenue +Beginning unearned revenue =Accrual basis revenue
Converting the cash basis revenue to accrual basis
Present Value Computations
1. Traditional Approach 2. Expected Cash Flow Approach -Expected Cash Flow -Risk and Uncertainty Adjustments to Cash Flows
"D": Discontinued Operations Calculation
1. Types of Items Included in Results of Discontinued Operations 2. Report in the Period Disposed of or Held for Sale 3. Depreciation and Amortization -Assets within the component are no longer depreciated or amortized
revenue rec. in health care orgs.
1. patient service rev. = accounted for on the accrual basis. on a gross basis, deductions are made tho for contractual adjustments, discounts, admin adj. & charity care is not included in gross rev. 2. other operating rev. = tuition for schools, rev from educational programs, donated supplies, specific purpose grants, cafeteria rev. parking fees, gift shop. 3. nonoperating rev and support gains and losses: interest and dividend, gifts, grants, income form endowment funds, income from board designatated funds, donated services
December 31, Year 2 Year 1 Cash $ 170,000 $ 90,000 Accounts receivable (net) 450,000 400,000 Merchandise inventory 540,000 420,000 Short‐term marketable securities 80,000 40,000 Land and building (net) 1,000,000 1,000,000 Mortgage payable—current portion 60,000 60,000 Accounts payable and accrued liabilities 240,000 220,000 Short‐term notes payable 100,000 140,000 Net credit sales totaled $3,000,000 and $2,000,000 for the years ended December 31, year 2 and year 1, respectively. At December 31, year 2, Rey's quick (acid‐test) ratio was 1.50 to 1. 1.75 to 1. 2.06 to 1. 3.10 to 1.
1.75 to 1 quick ratio= cash + investments in marketable securities + net AR/ current liabilities = (170k+80k+450k)=700000/(60k+240k+100k)=400000 =1.75 to 1
SEC Standards Included in the Codification
1.Regulation S-X 2.Financial Reporting Releases (FRR) 3. Accounting Series Releases (ASR) 4. Interpretative Releases (IR) 5. Staff Accounting Bulletins (SAB) 6. EITF Topic D and SEC Staff Observer Comments
10% combined revenue 10% combined profit/loss 10% combined assets
10% Segment Reporting Size Test
what is the filing requirements for a Non-Accelerated filer?
10-K: 90 days after fiscal year end; 10-Q: 45 days after quarter end
Based on 2000 sales of compact discs recorded by an artist under a contract with Bain Co., the artist earned $100,000 after an adjustment of $8,000 for anticipated returns. In addition, Bain paid the artist $75,000 in 2000 as a reasonable estimate of the amount recoverable from future royalties to be earned by the artist. What amount should Bain report in its 2000 Income Statement for royalty expense? $100,000 $108,000 $175,000 $183,000
100,000 This answer includes the $75,000 payment and the $8,000 return estimate. The artist earned $100,000 based on the sales of the CD. That is the total expense for Bain to recognize. The royalty payment of $75,000 is a partial payment of those earnings and should not be included twice. Also, there is no royalty on returned CDs. Some estimate must be made of returns in order to account for royalty expense at the end of 2000. Adjustments to the final amount earned for 2000, after all return information is known, will be treated as an adjustment to royalty expense in 2001.
Troop Co. frequently borrows from the bank to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Troop repaid each loan on its scheduled maturity date. Date of Maturity Term Loan Amount Date of Loan 11/1/Yr 3 $10,000 10/31/Yr 4 1 year 2/1/Yr 4 30,000 7/31/Yr 4 6 months 5/1/Yr 4 16,000 1/31/Yr 5 9 months Troop records interest expense when the loans are repaid. Accordingly, interest expense of $3,000 was recorded in Year 4. If no correction is made, by what amount would Year 4 interest expense be understated?
1080
Short term lease
12 month agreement with no purchase option with reasonable exercise
A company reports the following information as of December 31: Sales revenue $800,000 Cost of goods sold 600,000 Operating expenses 90,000 Unrealized holding gain on the available‐for‐sale securities, net of tax 30,000 What amount should the company report as comprehensive income as of December 31? $30,000 $110,000 $140,000 $200,000
140,000 800,000-600,000-90,000=110,000=NI 110,000 (NI) + 30,000 (OCI) = 140,000 (CI)
Young & Jamison's modified cash‐basis financial statements indicate cash paid for operating expenses of $150,000, end‐of‐year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual‐basis operating expenses, what would be the amount of operating expenses? $125,000 $135,000 $165,000 $175,000
165,000 Cash‐based operating expenses $150,000 Add the beginning of the year's prepaid expenses, 10,000. Subtract the end of the year's prepaid expenses, (15,000). Subtract the beginning of the year's accrued expenses, ( 5,000). Add the end of the year's accrued expenses, 25,000. Accrual‐based operating expenses, $165,000.
The following information was taken from Baxter Department Store's financial statements: Inventory on January 1 $ 100,000 Inventory on December 31 300,000 Net sales 2,000,000 Net purchases 700,000 What was Baxter's inventory turnover for the year ending December 31? 2.5 3.5 5 10
2.5 COGS/AVG INV=INV turnover dont have CoGS need to solve COGS= beg inv+ net purchases- end inv =100k+700k-300= 500k 500k/200k (avg inv)= 2.5
In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected the following data: Gain on sale of equipment $ (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from sale of treasury stock (carrying amount $65,000) 75,000 In its December 31, year 1 statement of cash flows, what amount should Reve report as net cash used in investing activities? $170,000 $176,000 $188,000 $194,000
170,000 Investing activities include all cash flows involving assets other than operating items. The investing activities are Proceeds from sale of equipment $ 10,000 Purchase of A.S., Inc. bonds (180,000) Net cash used in investing activities $ (170,000) The gain on sale of equipment ($6,000) and amortization of bond discount ($2,000) are net income adjustments in the operating section, while dividends paid ($38,000) and proceeds from sale of treasury stock ($75,000) are financing items. The excess of dividends declared over dividends paid is a noncash financing activity.
Perpetual inventory system
2 JE at time of sale, inventory is updated for each purchase and sale as they occur. Actual COGS is determined and recorded with sale. Purchase Inventory xx Cash. Xx
The following trial balance of Mint Corp. at December 31, year 1, has been adjusted except for income tax expense. Dr. Cr. Cash $ 600,000 Accounts receivable, net 3,500,000 Cost in excess of billings on long‐
 term contracts 1,600,000 Billings in excess of costs on 
 long‐term contracts $ 700,000 Prepaid taxes 450,000 Property, plant, and equipment, 
 net 1,480,000 Note payable—noncurrent 1,620,000 Common stock 750,000 Additional paid‐in capital 2,000,000 Retained earnings—unappro‐
 priated 900,000 Dr. Cr. Retained earnings—restricted for 
 note payable 160,000 Earnings from long‐term contracts 6,680,000 Costs and expenses 5,180,000 $ 12,810,000 $ 12,810,000 Other financial data for the year ended December 31, year 1, are Mint uses the percentage‐of‐completion method to account for long‐term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within twelve months. During year 1, estimated tax payments of $450,000 were charged to prepaid taxes. Mint has not recorded income tax expense. There were no temporary or permanent differences, and Mint's tax rate is 30%. In Mint's December 31, year 1 balance sheet, what amount should be reported as Total retained earnings? $1,950,000 $2,110,000 $2,400,000 $2,560,000
2,110,000 Total retained earnings includes both unappropriated retained earnings and restricted retained earnings. Therefore, before closing entries, total retained earnings is $1,060,000 ($900,000 + $160,000). Before computing year 1 net income, tax expense must be recorded. Earnings ($6,680,000) less costs and expenses ($5,180,000) result in pretax income of $1,500,000. Since the tax rate is 30%, tax expense is $450,000 (30% × $1,500,000). Therefore, an adjustment is necessary to debit income tax expense and credit prepaid taxes for $450,000. After the adjustment, net income is $1,050,000 ($6,680,000 − $5,180,000 − $450,000). After closing entries, total retained earnings is $2,110,000 ($1,060,000 + $1,050,000).
Selected data pertaining to Lore Co. for the calendar year 2005 is as follows: Net cash sales $3,000 Cost of goods sold 18,000 Inventory at beginning of year 6,000 Purchases 24,000 Accounts receivable at beginning of year 20,000 Accounts receivable at end of year 22,000 What was the inventory turnover for 2005? 1.2 times. 1.5 times. 2.0 times. 3.0 times.
2.0 times need to compute ending inventory to calculate inventory turnover Ending inventory= beginning inventory +purchases- COGS =6000+24000-18000=12000 Inventory turnover ratio= COGS/ avg inventory = 18000/((6000+12000)/2) =2
The following information pertains to each unit of merchandise purchased for resale by Vend Co.: March 1, year 1 Purchase price $ 8 Selling price $ 12 Price level index 110 December 31, year 1 Replacement cost $ 10 Selling price $ 15 Price level index 121 Under current cost accounting, what is the amount of Vend's holding gain on each unit of this merchandise? $0 $0.80 $1.20 $2.00
2.00 Current cost accounting is a method of valuing and reporting assets, liabilities, revenues, and expenses at their current cost at the balance sheet date or at the date of their use or sale. A holding gain is recorded as an increase in an item's value. At December 31, year 1, Vend Co. is holding merchandise which is currently valued at $10 per unit (replacement cost), while the original recorded value of the merchandise was $8 per unit (purchase price). Therefore, the holding gain is $2 per unit.
The following items were among those that appeared on Rubi Co.'s books at the end of year 1: Merchandise inventory $600,000 Loans to employees 20,000 What amount should Rubi classify as monetary assets in preparing constant dollar financial statements? $0 $ 20,000 $600,000 $620,000
20,000 The account "loans to employees" is a monetary asset account since its payment amount is fixed at some point in the future. Conversely, merchandise inventory is considered a nonmonetary asset account since its value will change based on relative price levels in the future. The total value of monetary assets is the balance of the loans to employees account, or $20,000.
What is the IFRS requirement for number of statements with change in accounting principle?
3 B/S and 2 of each other statement
Fund structure
3 categories Governmental funds = GRaSPP Proprietary funds = SE Fiduciary funds = CIPPoE
governmental, proprietary, fiduciary
3 main types of funds
Kline Co. had the following sales and accounts receivable balances at the end of the current year: Cash sales $1,000,000 Net credit sales 3,000,000 Net accounts receivable, 1/1 100,000 Net accounts receivable, 12/31 400,000 What is Kline's average collection period for its accounts receivable? 48.0 days. 30.0 days. 22.5 days. 12.0 days
30.0 days days' sales in AR= 365/AR turnover 365/ (3,000,000/((100000+400000)/2)) 365/(3,000,000/250,000) =365/12=30 days
Kent Co. filed a voluntary bankruptcy petition on August 15, year 1, and the statement of affairs reflects the following amounts: Book value Estimated current 
 value Assets Assets pledged with fully secured creditors $300,000 $370,000 Assets pledged with partially secured creditors 180,000 120,000 Free assets 420,000 320,000 $ 900,000 $ 810,000 Liabilities Liabilities with priority $70,000 Fully secured creditors 260,000 Partially secured creditors 200,000 Unsecured creditors 540,000 $1,070,000 Assume that the assets are converted to cash at the estimated current values and the business is liquidated. What amount of cash will be available to pay unsecured nonpriority claims? $240,000 $280,000 $320,000 $360,000
360,000 The total cash available to pay all unsecured claims, including priority claims, is the cash obtained from free assets ($320,000) and any excess cash available from assets pledged with fully secured creditors after they are used to satisfy those claims ($370,000 − $260,000 = $110,000). Therefore, total cash available is $430,000 ($320,000 + $110,000). After paying priority claims, $360,000 will remain to pay all unsecured nonpriority claims ($430,000 − $70,000).
Selected data pertaining to Lore Co. for the calendar year 2 is as follows: Net cash sales $ 3,000 Cost of goods sold 18,000 Inventory at beginning of year 6,000 Purchases 24,000 Accounts receivable at beginning of year 20,000 Accounts receivable at end of year 22,000 Lore would use which of the following to determine the average days' sales in inventory? Numerator Denominator 365 Average inventory 365 Inventory turnover Average inventory Sales divided by 365 Sales divided by 365 Inventory turnover
365 Inventory turnover
In preparing its cash flow statement for the year ended December 31, year 1, Reve Co. collected the following data: Gain on sale of equipment $ (6,000) Proceeds from sale of equipment 10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from sale of treasury stock (carrying amount $65,000) 75,000 In its December 31, year 1 statement of cash flows, what amount should Reve report as net cash provided by financing activities? $20,000 $27,000 $30,000 $37,000
37,000 Financing activities include all cash flows involving liabilities and owners' equity other than operating items. The financing activities are Dividends paid $(38,000) Proceeds from sale of treasury stock 75,000 Net cash provided by financing activities $ 37,000 The excess of dividends declared over dividends paid is a noncash financing activity. The gain on sale of equipment ($6,000) and amortization of bond discount ($2,000) are net income adjustments in the operating section, while the proceeds from sale of equipment ($10,000) and purchase of A.S., Inc. bonds ($180,000) are investing items.
how many parts is the 10-k seperated into?
4
operating activities, capital and related financing activities, noncapital financing activities, and investing activities
4 categories of the statement of cash flows for proprietary funds
Zeta Co. reported sales revenue of $4,600,000 in its Income Statement for the year ended December 31, 2001. Additional information is as follows: 12/31/00 12/31/01 Accounts receivable $1,000,000 $1,300,000 Allowance for uncollectible accounts (60,000) (110,000) Zeta wrote off uncollectible accounts totaling $20,000 during 2001. Under the cash basis of accounting, Zeta would have reported 2001 sales of: $4,900,000 $4,350,000 $4,300,000 $4,280,000
4,280,000 CASH BASIS= SUBTRACT INCREASE IN A/R 4,600,000-300,000-20,000(uncollectible account)= $4,280,000
The controller of Peabody, Inc. has been asked to present an analysis of accounts receivable collections at the upcoming staff meeting. The following information is used: 12/31, Year 2 12/31, Year 1 Accounts receivable $100,000 $130,000 Allowance, doubtful accounts (20,000) (40,000) Sales 400,000 200,000 Cost of goods sold 350,000 170,000 What is the receivables turnover ratio as of December 31, Year 2? 5.0 4.7 3.5 0.6
4.7 AR turnover= net sales/ net avg AR net AR= AR- allowance, doubtful accounts 400000/ {[(100000-20000)+(130000-40000)]/2} =400000/(80000+90000)/2 =4.7
Filing deadlines for 10-Q
40, 40, 45
Green, a calendar‐year taxpayer, is preparing a personal statement of financial condition as of April 30, year 2. Green's year 1 income tax liability was paid in full on April 15, year 2. Green's tax on income earned between January and April year 2 is estimated at $20,000. In addition, $40,000 is estimated for income tax on the differences between the estimated current values and current amounts of Green's assets and liabilities and their tax bases at April 30, year 2. No withholdings or payments have been made towards the year 2 income tax liability. In Green's April 30, year 2 statement of financial condition, what amount should be reported, between liabilities and net worth, as estimated income taxes? $0 $20,000 $40,000 $60,000
40,000 Only the estimated amount of income taxes on the differences between the estimated current values and current amounts of assets and liabilities is presented between liabilities and net worth.
Zach Corp. pays commissions to its sales staff at the rate of 3% of net sales. Sales staff are not paid salaries but are given monthly advances of $15,000. Advances are charged to commission expense, and reconciliations against commissions are prepared quarterly. Net sales for the year ended March 31, 2002, were $15,000,000. The unadjusted balance in the commissions expense account on March 31, 2002, was $400,000. March advances were paid on April 3, 2002. In its Income Statement for the year ended March 31, 2002, what amount should Zach report as commission expense? $465,000 $450,000 $415,000 $400,000 This is the correct expense for the year ($450,000) plus one month's advance. Advances do not affect the final recognized expense for the year, which is 3% of sales. Advances are the means by which the commission is paid.
450,000 15,000,000 *.03 This is the correct expense for the year ($450,000) plus one month's advance. Advances do not affect the final recognized expense for the year, which is 3% of sales. Advances are the means by which the commission is paid.
On May 31, 20X7, Quay owned a $10,000 whole‐life insurance policy with a cash‐surrender value of $4,500, net of loans of $2,500. In Quay's May 31, 20X7, personal statement of financial condition, what amount should be reported as investment in life insurance? $4,500 $7,000 $7,500 $10,000
4500 in personal statement of fin. cond. life insurance should be reported at cash surrender value less any loans
Under East Co.'s accounting system, all paid insurance premiums are debited to prepaid insurance. For interim financial reports, East makes monthly estimated charges to insurance expense with credits to prepaid insurance. Additional information for the year ended December 31, 2005, is as follows: Prepaid insurance at December 31, 2004 $105,000 Charges to insurance expense during 2005 (including a year‐end adjustment of 17,500) 437,500 Prepaid insurance at December 31, 2005 122,500 What was the total amount of insurance premiums paid by East during 2005? $322,500 $420,000 $437,500 $455,000
455,000 437,500+17,500
During year 2, Rand Co. purchased $960,000 of inventory. The cost of goods sold for year 2 was $900,000, and the ending inventory at December 31, year 2, was $180,000. What was the inventory turnover for year 2? 6.4 6.0 5.3 5.0
6.0 Inv turnover= COGS/ AVG Inventory Avg Inventory= (beg inv + ending inv)/2 Beg Inv(not given in problem)= Cost of goods sold $ 900,000 + Ending inventory 180,000 =Cost of goods available for sale $1,080,000 − Purchases − 960,000 =Beginning inventory $120,000 so avg inv= (120000+180000)/2=150000 COGS(900000)/AVG INV(150000)=6.0
Filing deadlines for 10-K
60, 75, 90
December 31, Year 2 Year 1 Cash $ 170,000 $ 90,000 Accounts receivable (net) 450,000 400,000 Merchandise inventory 540,000 420,000 Short‐term marketable securities 80,000 40,000 Land and building (net) 1,000,000 1,000,000 Mortgage payable—current portion 60,000 60,000 Accounts payable and accrued liabilities 240,000 220,000 Short‐term notes payable 100,000 140,000 Net credit sales totaled $3,000,000 and $2,000,000 for the years ended December 31, year 2 and year 1, respectively. For year 2, Rey's accounts receivable turnover was 1.13 1.50 6.67 7.06
7.06 AR turnover= net credit sales/avg AR =3,000,000
A company records items on the cash basis throughout the year and converts to an accrual basis for year‐end reporting. Its cash‐basis net income for the year is $70,000. The company has gathered the following comparative Balance Sheet information: Beginning of year End of year Accounts payable $ 3,000 $ 1,000 Unearned revenue 300 500 Wages payable 300 400 Prepaid rent 1,200 1,500 Accounts receivable 1,400 600 What amount should the company report as its accrual‐based net income for the current year? $68,800 $70,200 $71,200 $73,200
71,200 70,000+ AP 2000+ unearned rev 200+ wage payable 100- prepaid rent 300 -AR 800= 71,200
Quinn is preparing a personal statement of financial condition as of April 30, 20X5. Included in Quinn's assets are the following: 50% of the voting stock of Ink Corp. A stockholders' agreement restricts the sale of the stock and, under certain circumstances, requires Ink to repurchase the stock. Quinn's tax basis for the stock is $430,000, and on April 30, 20X5, the buyout value is $675,000. Jewelry with a fair value aggregating $70,000 based on an independent appraisal on April 30, 20X5, for insurance purposes. This jewelry was acquired by purchase and gift over a 10‐year period and has a total tax basis of $40,000. What is the total amount at which the Ink stock and jewelry should be reported in Quinn's April 30, 20X5 personal statement of financial condition? $470,000 $500,000 $715,000 $745,000
745000 fair value( buyout value) of the voting stock (675000)+ fair value of the jewelry (70000)=745000
75% of revenue from external parties
75% Reporting Sufficiency Test
Jen has been employed by Komp, Inc. since February 1, 2009. Jen is covered by Komp's Section 401(k) deferred compensation plan. Jen's contributions have been 10% of salaries. Komp has made matching contributions of 5%. Jen's salaries were $21,000 in 2009, $23,000 in 2010, and $26,000 in 2011. Employer contributions vest after an employee completes three years of continuous employment. The balance in Jen's 401(k) account was $11,900 on December 31, 2011, which included earnings of $1,200 on Jen's contributions. What amount should be reported for Jen's vested interest in the 401(k) plan in Jen's December 31, 2011, personal statement of financial condition? $11,900 $8,200 $7,000 $1,200
8200 add contributions * the rate of cotribution +company contribution 21000+23000+26000=70000*10% rate = 7000 +1200 company contributed =8200
Mirr, Inc. was incorporated on January 1, year 1, with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, year 2. No additional activities affected owners' equity in year 1. Mirr's liabilities increased to $120,000 by December 31, year 1. On Mirr's December 31, year 1 balance sheet, total assets should be reported at $885,000 $882,000 $878,000 $875,000
885000 (750000+ 120000= 885000)
The following information pertains to an insurance policy that Barton owns on his life: Face amount $100,000 Accumulated premiums paid up to December 31, 2011 8,000 Cash value at December 31, 2011 12,000 Policy loan 3,000 In Barton's personal statement of financial condition at December 31, 2011, what amount should be reported for the investment in life insurance? $97,000 $12,000 $9,000 $8,000
9000 cash value (12000)- policy loan (3000)= whats reported (9000)
The following computations were made from Clay Co.'s year 2 books: Number of days' sales in inventory 61 Number of days' sales in accounts receivable 33 What was the number of days in Clay's year 2 operating cycle? 33 47 61 94
94 61+33=94
Pak Co.'s professional fees expense account had a balance of $82,000 on December 31, 2001, before considering year‐end adjustments relating to the following: Consultants were hired for a special project at a total fee not to exceed $65,000. Pak has recorded $55,000 of this fee based on billings for work performed in 2001. The attorney's letter requested by the auditors dated January 28, 2002, indicated that legal fees of $6,000 were billed on January 15, 2002, for work performed in November 2001, and unbilled fees for December 2001 were $7000. What amount should Pak report for professional fees expense for the year ended December 31, 2001? $105,000 $95,000 $88,000 $82,000
95000 82000+6000+7000=95000 include the UNBILLED FEES!!
Class Corp. maintains its accounting records on the cash basis, but it restates its financial statements to the accrual method of accounting. Class had $60,000 in cash‐basis pretax income for 2002. The following information pertains to Class operations for the years ended December 31, 2002 and 2001: 2002 2001 Accounts receivable $40,000 $20,000 Accounts payable 15,000 30,000 Under the accrual method, what amount of income before taxes should Class report in its December 31, 2002, Income Statement? $25,000 $55,000 $65,000 $95,000
95000 The decrease in accounts payable should be added, not subtracted from cash‐basis income. The decrease in accounts payable represents payments in excess of expenses and, thus, causes accrual income to exceed cash‐basis income. add increase in AR add decrease in AP
loss is reasonably possible
= disclose (do not record JE/accrue)
premiums and warranties
= guessing (looking forward) - probably and reasonably estimate total number of coupons issued * estimated redemption rate = coupon redemption.
FV of ordinary annuity
= periodic payment * future value of an OA of $1 for appropriate n and r
Business combinations
> 50% direct or indirect ownership; will consolidate unless sub is in bankruptcy or legal reorganization
Thresholds for reporting of an operating segment
>= 10% of combined revenue (including inter-company), absolute value of the greater of isolated profit OR loss, OR assets All reported segments must be at least 75% of consolidated revenues (must add on reportable segments to achieve this)
Lessee accounting for operating lease
@ inception: ROU asset and lease liability for PV of payments + GRV @ pmt: lease expense (SL of total payments), lease liability (ROU amortization), cash (pmt), ROU accumulated amortization (plug pmt - interest (ROU balance * rate)) SoCF: pmt and ST lease (CFO); payments to get into working form (CFI)
Lessee accounting for financing lease
@ inception: ROU asset, lease liability, and cash (indirect costs) @ pmt: interest expense (CV liability * rate), amortization expense (SL amortization), lease liability (plug), cash (pmt), and ROU accumulated amortization (SL amortization) SoCF: principal payments (CFF); interest/variable payment/ST (CFO)
Lessor sales-type / direct financing accounting
@ inception: lease receivable (indirect costs included in here if direct financing), lease expense (for indirect costs only if G/L recognized on sales-type lease), residual asset (expected residual value), fixed asset (CV), cash (pmt of indirect costs), and G/L (SP - NBV) @ pmt: cash (pmt), interest income (CV of receivable + residual asset * rate), plug lease receivable
Par method for T/S purchases
@ purchase > original cost: T/S recognized at par; reverse APIC - C/S and plug RE (loss) @ purchase < original cost: T/S recognized at par; reverse APIC - C/S and plug APIC - TS @ resale > par = plug APIC - C/S @ resale < par = plug APIC - T/S and RE if needed
Cost method for T/S purchases
@ purchase: record at cost @ resale > cost: gain = APIC - T/S @ resale < cost: loss = APIC - T/S to extent of balance; remaining loss = RE
the operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement
A new statement is issued only after a majority vote by the members of the FASB.
common stockholders equity formula
A - L = total shareholders equity - preferred stock oustanding - cumulative preferred dividends in arrears = common shareholders equity
Which of the following statements best describes an operating procedure for issuing a new Accounting Standards Update?
A new update is issued only after a majority vote by the members of the FASB.
Which of the following examples would require restatement of prior years' financial statements?
A change from the income tax basis of accounting to the accrual basis
Which of the following statements regarding inventory accounting systems is true?
A disadvantage of the periodic inventory system is that the cost of goods sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.
For a company to obtain a retail business license in a particular state, the company is required to pay the state the equivalent of 3 months of sales taxes on its projected retail sales. This amount is fully refundable after 5 years, provided the company has filed all required sales tax returns and paid all sales taxes due. Initially the company should report the payment related to this licensing requirement as
A noncurrent asset
Debt service fund
A fund to account for financial resources set aside for the payment of interest and principal on long-term debt; a sinking fund. - central city development debt service fund - community redevelopment debt service fund BS current items only assets liab fund balance
80% of taxable income
A net operating loss (NOL) of a period may be carried forward indefinitely to future tax years, limited to...
Revenues of an entity are usually measured by the exchange values of the assets or liabilities involved. Recognition of revenue does not occur until
A performance obligation is satisfied by transfer of control of an asset
Stock appreciation rights (SARs)
A plan in which the company gives an executive the right to receive compensation equal to the share appreciation from the value at the grant date The value of the liability and the compensation expense (total liability at date / service period) is recorded each year with a resulting DTA/L At exercise, liability is decreased and cash is recorded for the difference between price at grant date and FMV
Which of the following documents is typically issued as part of the due-process activities of the FASB for amending the FASB Accounting Standards Codification?
A proposed accounting standards update
what is a prospectus?
A prospectus describes the issuing company, the business operations and risks, the financial statements, and the expected use of the proceeds.
During a period of inflation in which a liability account balance remains constant, what occurs?
A purchasing power gain, if the item is a monetary liability.
Which of the following is not disclosed on the Statement of Cash Flows, either on the face of the statement or in a separate schedule, when prepared under the direct method? The major classes of gross cash receipts and gross cash payments. The amount of income taxes paid. A reconciliation of net income to net cash flow from operations. A reconciliation of ending retained earnings to net cash flow from operations.
A reconciliation of ending retained earnings to net cash flow from operations.
Unusual and infrequently occurring events are reported as
A separate line item appearing within income from continuing operations.
The transaction price from contracts with customers generally should not be adjusted for the effect of the time value of money when
A substantial amount of the consideration is contigent on a future event that is not within the control of the seller
Sale and leaseback
A transaction in which the owner sells improved property and, as part of the same transaction, signs a long term lease to remain in possession of the premises. to meet the criteria, both of the following must be met: - the options exercise price already is or will be the same as the underlying assets FV at the time of exercise - alternative assets that are substantially equivalent to the underlying asset are readily available in the marketplace. (if 1 of the 2 are not met than it is a failed sale)
what would you report in AOCI related to pension plans?
A unrecognized prior service cost G Unrecognized net gain E Unrecognized transition obligation
An entity recognizes revenue from a long-term contract over time. However, early in the performance of the contract, it cannot reasonably measure the outcome, but it expects to recover the costs incurred. Revenue should be recognized based on
A zero profit margin
the guidance of ASC 820 does not apply to:
A) Accounting principles that address share-based payment transactions; B) ASCs that require or permit measurements that are similar to fair value but that are not intended to measure fair value, including: 1. Accounting principles that permit measurements that are determined using vendor-specific objective evidence of fair value; 2. Accounting principles that address fair value measurement for purposes of inventory pricing; C. Accounting principles that address fair value measurements for purposes of lease classification or measurement; D. ASCs that permit practicability exceptions to fair value measurement. E. Pervasive Applicability
Which basis of accounting is most likely to provide the best assessment of an entity's past and future ability to generate net cash flows?
Accrual basis
Brite Corp. had the following liabilities at December 31, Year 6: Accounts payable $ 55,000 Unsecured notes, 8%, due 7/1/Year 7 400,000 Accrued expenses 35,000 Contingent liability 450,000 Deferred income tax liability 25,000 Senior bonds, 7%, due 3/31/Year 7 1,000,000 The contingent liability is an accrual for possible losses on a $1 million lawsuit filed against Brite. Brite's legal counsel expects the suit to be settled in Year 8 and has estimated that Brite will be liable for damages in the range of $450,000 to $750,000. The deferred income tax liability is not related to an asset for financial reporting and is expected to reverse in Year 8. What amount should Brite report in its December 31, Year 6, balance sheet for current liabilities?
A/P 55,000 Unsecured notes 400,000 Accrued Expenses 35,000 Senior Bonds 1,000,000 _______________________________ $1,490,000
Health care NFP non-operating revenues
ALL w/o DR interest/dividend income, endowment fund income, donated services, grants, gifts, and bequests
Required characteristics for a business components to be classified as "held for sale"
ALL: (1) management commits to plan, (2) component is available for immediate sale, (3) active program to locate buyer, (4) sale is probable w/in 1 year, (5) actively marked, and (6) unlikely that changes to plan will be made or that it will be withdrawn
Asset retirement obligation
ARC (asset) = ARO (liability) = PV of ARO; ARO = accretion expense (increase of ARO over time due to TVM) and depreciation expense (decrease of ARC on balance sheet over its useful life)
Which one of the following actions would result in a decrease in income?
Accelerating purchases at the end of the year when using LIFO inventory method in times of rising prices
Under the FASB Accounting Standards Codification, updates to GAAP are made as
Accounting Standard Updates
Changes and updates to the Codification are accomplished through
Accounting Standards Updates (ASUs)
Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to:
Accrual accounting
Accrual accounting involves accruals and deferrals. Which of the following best describes accruals and deferrals?
Accruals are concerned with expected future cash receipts and payments, while deferrals are concerned with past cash receipts and payments.
Sick/vacation pay accrual
Accrue if vest OR accumulate and related to services already rendered Valued at current salary levels If sick pay doesn't vest, no accrual is made because estimates of future sick pay are not reliable
How to present estimates for expenses in interim reporting that depend on the year as a whole
Actual and estimated expenses benefiting interim periods equally is expensed ratably over the benefitted period (such as the entire year) Losses = recorded in total ONCE probable and estimable and recorded in the quarter (interim period) that this requirement is met (if we think the loss will reverse, it is NOT probable yet)
Subsequent events
After BS date but before FS issuance - recognize Settlement of litigation - loss on uncollectible events - record JE and disclose - existed at BS date
Non-monetary exchange lacking commercial substance:
All losses are recognized (G/L = FV - NBV) No boot = no gain Boot given = no gain Boot received < 25% = proportional gain Boot given/received >= 25% = entire G/L is recognized as if monetary transaction
A change in warranty obligations because new information has been obtained is
An accounting change that should be reported in the period of change and future periods if the change affects both
According the the FASB's conceptual framework, which of the following is an essential characteristic of an asset?
An asset provides future benefits
what is an essential characteristic of an asset>?
An asset provides future benefits
What would meet the qualifications as market participants in determining fair value?
An independent entity that is knowledgeable about the asset.
The best evidence of a standalone selling price of a promised good or service to a customer is
An observable price
When purchasing / defending patents, how are they recorded?
Any costs related to unsuccessful patent = expensed (not capitalized) Purchase price + acquisition costs + successful legal fees = entire capitalized balance of patent Finite life intangible assets MUST be amortized over the lesser of the useful life or legal life (straight line should be applied)
Under IFRS, which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies? Consider the most recent pronouncements of other standard‐setting bodies to the extent they do not conflict with the IFRS or the IASB Framework. Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the IASB Framework. Apply the requirements in IFRS dealing with similar and related issues.
Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition.
Cash equivalents are short-term investments that
Are convertible into a known and fixed amount of cash; and Have an original maturity to the purchaser of three months or less.
Cali, Inc., had a $4 million note payable due on March 15, Year 2. On January 28, Year 2, before the issuance of its Year 1 financial statements, Cali issued long-term bonds in the amount of $4.5 million. Proceeds from the bonds were used to repay the note when it came due. How should Cali classify the note in its December 31, Year 1, financial statements?
As a noncurrent liability, with separate disclosure of the note refinancing
How should a company report its decision to change from a cash-basis of accounting to accrual basis of accounting?
As a prior-period adjustment (net of tax), by adjusting the beginning balance of retained earnings
On January 1, Year 3, a company changed its inventory costing method from LIFO to FIFO. The company's Year 3 financial statements contain comparative information for Year 2. How should the company present the Year 2 effect of the change in accounting principle in its Year 3 comparative financial statements?
As an adjustment to the beginning Y2 inventory balance with an offsetting adjustment to the Beginning Y2 retained earnings
A building contractor has a fixed-price contract to construct a building on the customer's land. The building is expected to be completed in 2 years. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract if its outcome can be reasonably measured?
As progress is made toward completion of the contract
under GAAP, what approach is used to determine income tax expense
Asset and liab approach
In consolidation, how are assets, liabilities, and equity presented?
Assets and liabilities = @ FV RE = parent only Consolidated NI = parent stand alone income + parent's share of NI - goodwill impairment Eliminated = investment in sub and inter-company transactions
Financial instruments
Assets: receiving payments, your the investor, etc. consisting of cash, accounts receivable, an ownership interest, or a contractual right to receive or obligation to deliver cash or another financial instrument. Liabilities: make payments, borrowing, issuer, etc. deliver cash, unfavorable terms of a derivative
A note payable was issued in payment for services received. The services had a fair value less than the face amount of the note payable. The note payable has no stated interest rate. How should the note payable be presented in the statement of financial position?
At the face amount minus a discount calculated at the imputed interest rate
How are current liabilities reported?
At their settlement value; CL = settlement within longer of 1 year or operating cycle
BS asset, formula for ending FV of plan assets
B beginning FV of plan asset A add contributions, actual return on plan assets S subtract benefits paid to retirees E ending FV of plan assets
formula for projected benefit obligation (BS liab)
B beginning projected benefit obligation A add service cost, interest cost, prior service cost from current period plan amendments, actuarial losses incurred in the current period. S subject actuarial gains incurred in the current period, benefits paid to retirees E ending projected benefit obligation
Reconciliation from fund to G-W statement of activities (change)
[CPAS RIDE] [SIT] = internal service fund activity (revenues/expenses)
Which of the following disclosures should prospective financial statements include? Summary of significant accounting policies Summary of significant assumptions
BOTH
Which of the following valuation methods may be used to measure investments classified as held‐to‐maturity? Amortized Cost Fair Value?? No No No Yes Yes No Yes Yes
BOTH!
Governmental funds FS
BS (A+DO-L-DI=FB) = [NRCAU] SoRE&FB (revenue, expenditures, OFS/OFU)
Annual FS
BS for two most recent FY:; IS , changes in equity, CF for each of 3 FY preceding IFRS: two BS, two statements of comprehensive income, 2 statements of changes in equity, 2 CF
In analyzing a company's financial statements, which financial statement will a potential investor primarily use to assess the company's liquidity and financial flexibility?
Balance Sheet
financial statements presented for form 10-Q
Balance sheet for the quarter and prior fiscal year end; Quarterly and year-to-date income statements for this quarter and the same period in the previous year; and Cumulative year-to-date statements of cash flow for the current and prior fiscal years.
Which of the following should be disclosed in a summary of significant accounting policies?
Basis of consolidation
Which of the following should be disclosed in a summary of significant accounting policies?
Basis of profit recognition on long-term construction contracts.
Accounts Payable 12/31/X1 $80,000 Accounts Payable 12/31/X2 90,000 Increase - 20X2 $10,000
Because Accounts Payable increased by $10,000, an expense (including possibly COGS) is included in net income, but the cash has not been paid. Therefore, $10,000 would be added to Net Income. If Accounts Payable had decreased, more cash would have been paid than expenses recognized for the period. Therefore, the amount of decrease would have to be deducted from net income to determine the related cash flow.
cost of sales formula=
Beginning finished goods $400,000 + Cost of goods manufactured + CGM − Ending finished goods −360,000 Cost of sales $ 240,000 plug for COGM when DM, DL Factory OH are not given...
cost of goods manufactured=
Beginning work in process + Direct materials used + Direct labor + Factory overhead − Ending work in process= Cost of goods manufactured
Under U.S. GAAP the disclosure requirements when fair value measurement is used are differentiated by which of the following classifications?
Between items measured at fair value on a recurring basis and items measured at fair value on a non‐recurring basis.
In personal financial statements, how should estimated income taxes on the excess of the estimated current values of assets over their tax bases be reported in the statement of financial condition? As liabilities. As deductions from the related assets. Between liabilities and net worth. In a footnote disclosure only.
Between liabilities and net worth.
Which of the following best describes the term "public accountability" according to IFRSs and IFRS for SME? I. Entity files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market. II. Entity holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance entity, securities broker/dealer, pension fund, mutual fund, or investment banking entity. I. only. II Only. Both I and II. Neither I nor II.
Both I and II
How should the effect of a change in accounting estimate be accounted for?
By prospectively applying the change to current and future periods
Volga Co. included a foreign subsidiary in its Year 6 consolidated financial statements. The subsidiary was acquired in Year 4 and was excluded from previous consolidations. The change was caused by the elimination of foreign currency controls. Including the subsidiary in the Year 6 consolidated financial statements results in an accounting change that should be reported
By retrospective application to the financial statements of all prior periods presented
On November 1, 2005, Key Co. paid $3,600 to renew its insurance policy for three years. At December 31, 2005, Key's unadjusted trial balance showed a balance of $90 for prepaid insurance and $4,410 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Key's December 31, 2005, financial statements? Prepaid Insurance Insurance expense a) $3,300 $1,200 b) $3,400 $1,200 c) $3,400 $1,100 d) $3,490 $1,010
C) The prepaid insurance is overstated by only $90, which is the prepaid insurance remaining in the trial balance from the beginning of the year. This firm records all insurance as expense and then adjusts for the remaining prepaid at the end of the year. Such a small amount would have expired by the end of 2005. The insurance expense is off by the same $90 and for the same reason but in the other direction. The correct answer is $1,100.
Sanni Co. had $150,000 in cash‐basis pretax income for the year. At the current year end, accounts receivable decreased by $20,000 and accounts payable increased by $16,000 from their previous year‐end balances. Compared to the accrual‐basis method of accounting, Sanni's cash‐basis pretax income is: Higher by $4,000. Lower by $4,000. Higher by $36,000. Lower by $36,000.
C) HIGHER BY 36,000 DECREASE IN AR= +20000 INCREASE IN AP= +16000 because accrual cost of goods sold exceeds cash paid for inventory.
statement of cash and equity statement of cash receipts and disbursements
Cash Basis Financial Statements
Current ratio =
CA/CL
assets - liabilities
CAR in a consolidation adjustment =
Available-for-sale securities
CF from investments - FV, realized GL IS, unrealized GL = Equity OCI. cash flow: investing
disposal
Cash Accumulated depr (to date of sale) Sold asset at cost DR/CR G/L write off of fully depre asset Accum Depr old asset at full cost total and permanent impairment Accum Depre Loss due to impairment Asset at full cost
example of SCF for operating activities-indirect method
Cash Flow From Operating Activities Net Income (given) $110,000 Adjustments to Reconcile Net Income to Net Cash provided by Operating Activities: Depreciation Expense (above) $150,000 Loss on Equipment Sale (above) 5,000 Undistributed Equity Revenue (above) (28,000) Amortization of Premium on Bond Investment (assumed) 3,000 Increase in Accounts Receivable (above) (15,000) Increase in Inventory (direct method) * (20,000) Decrease in Prepaid Expenses (direct method) * 5,000 Increase in Accounts Payable (above) 10,000 Increase in Expenses Payable (direct method) * 15,000 Increase in Unearned Revenues (above) 25,000 Total Adjustments $150,000 Net Cash Provided by Operating Activities $260,000
How are dividends accounted for between FV vs equity methods?
Cash div: FV method = dividend income Equity method = decrease to investment account (ROI) Stock div: No effect on either Liquidating div: FV method = decrease to investment Equity method = same as cash dividend
Investing
Cash flows related to the acquisition and disposal of long-term assets and investments (other than cash equivalents and trading securities - these are operating). Investing cash outflows include purchases of plant assets and investments. Cash inflows include proceeds from the sale of these items.
Financing
Cash flows related to the liabilities and owners' equity sections of the balance sheet. Financing cash inflows include issuing debt and equity securities. Cash outflows include retirement of debt and equity securities, and dividend payments.
Accrual to cash conversion formulas
Cash to accrual for Revenue Cash collection + ending AR - Beg AR - Ending unearned rev. + beg unearned rev. Expenses Cash payments + ending AP - beg. AP - capitalized assets + CY depre - ending prepaids + beg prepaids
nature and sources of constraints
Certain funds can only be used for w/ certain constraints N nonspendable (practical, monies have been spent, inventory) U unassigned (general fund only = positive) C committed (government set aside - highest) A assigned (intention w/out formal commitement) R restricted (bond covenants, external, law)
On January 1, Year 6, Roem Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $500,000 increase in the January 1, Year 6, inventory. Assume that the income tax rate for all relevant years is 30%. If Roem issues financial statements for Year 6 only, the cumulative effect of the accounting change on all prior periods should be reported in the year-end
Change from unaccepted principle to accepted principel
Finer Foods, Inc., a chain of supermarkets specializing in gourmet food, has been using the average cost method to measure its inventory. During the current year, the company changed to the first-in, first-out method of inventory measurement. The president of the company reasoned that this change was appropriate because it would more closely match the flow of physical goods. This change should be reported on the financial statement as a
Change in accounting principle
The concept of consistency is sacrificed in the accounting for which of the following income statement items?
Change in accounting principle when the cumulative effect on any prior period is not known
On January 2, Year 3, to better reflect the variable use of its only machine, Holly, Inc., elected to change its method of depreciation from the straight-line method to the units-of-production method. The original cost of the machine on January 2, Year 1, was $50,000 with no salvage value, and its estimated life was 10 years. Holly estimates that the machine's total life is 50,000 machine hours. The machine hours usage was 8,500 during Year 2 and 3,500 during Year 1. Holly's income tax rate is 30%, and the machine hours usage was 10,000 in Year 3. If Holly issues single-period statements only, it should report the accounting change in its Year 3 financial statements as a(n)
Change in estimate and depreciation expense of $10,526
A company has beginning net assets of $100,000 and ending net assets of $95,000. During the year, additional capital stock was sold for $8,000, and dividends of $3,000 were declared. Using the capital maintenance approach, the net income (loss) for the year is calculated as
Change in net assets (5000) Capital stock sold (8000) Dividends declared 3000 ________________ (10,000)
Which of the following would be reported as an investing activity in a company's statement of cash flows?
Collection of a note receivable from a related party
Which of the following would be reported as an investing activity in a company's statement of cash flows? Collection of proceeds from a note payable. Collection of a note receivable from a related party. Collection of an overdue account receivable from a customer. Collection of a tax refund from the government.
Collection of a note receivable from a related party.
Book Value per Common Stock =
Common Shareholders' Equity / Number of Outstanding Common Shares
According to the FASB's conceptual framework, the quality of information that enables users to identify similarities in and differences between to sets of economic phenomena is
Comparability
According to the FASB's conceptual framework, which of the following enhances information that is relevant and faithfully represented?
Comparability
relates to both accounting relevance and faithful representation?
Comparability
A transaction that is unusal in nature or infrequent in occurence should be reported
Component of income from continuing operations, but not net of applicable income taxes
DR: CAR - Common stock, APIC, and retained earnings of sub are eliminated CR: I- Investment in sub is eliminated CR: N- Noncontrolling Interest is created DR: B-Balance sheet of sub is adjusted to fair value DR: I- Identifiable Intangible assets of sub are recorded at fair value DR: G- Goodwill (or CR: gain) is recorded
Consolidation adjustments
When the SBW Co. began business, it included such indirect costs of manufacturing as janitorial expenses, depreciation of machinery, and insurance on the factory building as inventory costs. At the beginning of the current year, SBW began expensing all insurance costs when they are incurred. SBW must justify and disclose the reason for the change. The most appropriate reason is that the new principle
Constitutes an improvement in financial reporting
Which of the following should be reflected, net of applicable income taxes, in the statement of equity as an adjustment of the opening balance in retained earnings?
Correction of an error in previously issued financial statements
According to the FASB's conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of
Cost
Valuation of Fixed Assets under IFRS
Cost (U.S GAAP) or revaluation
units of production depreication
Cost - salvage / estimated units or hours = rate per unit or hour rate per unit * number of units produced = depex - converts depre to a variable costs
T/S retirement
Cost method: after eliminating C/S and original APIC-C/S account, plug APIC - T/S (if gain), plug RE (if loss) Par method: dr. CS at par and cr. TS at par
Inventory Turnover =
Cost of Goods Sold / Average Inventory (e.g. (Beginning + Ending)/2) sales/inventory
Which of the following information should be disclosed in the summary of significant accounting policies?
Criteria for determining which investments are treated as cash equivalents
Financial Capital is reported on:
Current
Working Capital =
Current Assets - Current Liability
Working Capital Ratio= (Working Ratio)
Current Assets/Current Liabilities
Current Cost Income Statement
Current Cost Income Statement Sales xxx Cost of goods sold xxx Current cost income from continuing operations xxx Realized holding gain (loss) xxx Realized income xxx Unrealized holding gain (loss) (xxx) Current cost net income xxx
The following trial balance of Mint Corp. at December 31, year 1, has been adjusted except for income tax expense. Dr. Cr. Cash $ 600,000 Accounts receivable, net 3,500,000 Cost in excess of billings on long‐
 term contracts 1,600,000 Billings in excess of costs on 
 long‐term contracts $ 700,000 Prepaid taxes 450,000 Property, plant, and equipment, 
 net 1,480,000 Note payable—noncurrent 1,620,000 Common stock 750,000 Additional paid‐in capital 2,000,000 Retained earnings—unappro‐
 priated 900,000 Dr. Cr. Retained earnings—restricted for 
 note payable 160,000 Earnings from long‐term contracts 6,680,000 Costs and expenses 5,180,000 $ 12,810,000 $ 12,810,000 Other financial data for the year ended December 31, year 1, are Mint uses the percentage‐of‐completion method to account for long‐term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within twelve months. During year 1, estimated tax payments of $450,000 were charged to prepaid taxes. Mint has not recorded income tax expense. There were no temporary or permanent differences, and Mint's tax rate is 30%. In Mint's December 31, year 1 balance sheet, what amount should be reported as Total current assets? $5,000,000 $5,450,000 $5,700,000 $6,150,000
Current assets listed in the trial balance are cash ($600,000), accounts receivable ($3,500,000), cost in excess of billings on long‐term contracts ($1,600,000) and prepaid taxes ($450,000). However, income tax expense has not yet been recorded. Earnings ($6,680,000) less costs and expenses ($5,180,000) result in pretax income of $1,500,000. Since the tax rate is 30%, tax expense is $450,000 (30% × $1,500,000). Therefore, an adjustment is necessary to debit income tax expense and credit prepaid taxes for $450,000. Total current assets, after this adjustment, are $5,700,000. Cash $ 600,000 Accounts receivable 3,500,000 Cost in excess of billings 1,600,000 $ 5,700,000
A company has outstanding accounts payable of $30,000 and a short-term construction loan in the amount of $100,000 at year end. The loan was refinanced through issuance of long-term bonds after year end but before issuance of financial statements. How should these liabilities be recorded in the balance sheet?
Current liabilities of $30,000, noncurrent liabilities of $100,000
As of December 1, Year 2, a company obtained a $1,000,000 line of credit maturing in 1 year on which it has drawn $250,000, a $750,000 secured note due in 5 annual installments, and a $300,000 3-year balloon note. The company has no other liabilities. How should the company's debt be presented in its classified balance sheet on December 31, Year 2, if no debt repayments were made in December?
Current liabilities of $400,000 and long-term liabilities of $900,000.
How should unearned rent that has already been paid by tenants for the next eight months of occupancy be reported in a landlord's financial statements?
Current liability
According the the FASB's conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid of the same or equivalent assets were acquired currently. What is the name of the reporting concept?
Current replacement cost
Fiduciary funds
Custodial (temporary custody) Investment trust (external investment pool) Private purpose trust (catch-all) Pension / other employee benefit (NPL = TPL - FNP)
Enterprise fund
Customer, not citizen. Used for opporations similair to a business enterprise. - public utilities - public hospital - public universities revenues are reported either net of discounts and allowance or reported gross with related discount income statement I income N nonoperating income and exp C capital contributions A additions to endowments S special items E extraordinary item T trans
A department store ordinarily recognizes revenue when
Customers receive merchandise
FASB prefers which method for the operating method of SCF???
DIRECT
A loss is probable and can be reasonably estimated
DR. expense CR. Liability if no amount in the range is a better estimate than the minimum amount in the range should be accrued IFRS: midpoint in range.
If the investee paid a cash dividend during the period, the Investor entry would be:
DR: Cash CR: Investment in Investee (asset)
Amortization of Discount on Bonds Payable When bonds are issued for less than maturity value, a discount results. The related entry would be:
DR: Cash DR: Discount on Bonds Payable CR: Bonds Payable
The subsequent amortization of the discount would be recorded by a periodic entry:
DR: Interest Expense CR: Discount on Bonds Payable
The subsequent amortization of the premium would be recorded by a periodic entry:
DR: Interest Income CR: Premium on Bond Investment
Investee reports Net Loss, Investor entry:
DR: Investment (Equity) Loss CR: Investment in Investee (asset)
how Amortization of Premium on Bond Investment When bonds are purchased for more than maturity value, a premium results. The related entry would be:
DR: Investment in Bonds (at face value) DR: Premium on Bond Investment CR: Cash
equity method adjustments: Investee reports Net Income, Investor entry:
DR: Investment in Investee (asset) CR: Investment (Equity) Revenue
Increase in Accounts Payable When purchases are made on account, the related entry would be:
DR: Purchases (or other asset) CR: Account Payable
Operating Number of Cycle =
Days in Operating = Number of Days' Sale in A/R + Length Cycle Number of Days' Supply in Inventory
Zenk Co. wrote off obsolete inventory of $100,000 during 2005. What was the effect of this write‐off on Zenk's ratio analysis? Decrease in current ratio but not in quick ratio. Decrease in quick ratio but not in current ratio. Increase in current ratio but not in quick ratio. Increase in quick ratio but not in current ratio.
Decrease in current ratio but not in quick ratio. decrease in inventory= decrease in current assets= decrease in current ratio
A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change? Ending Inventory Net Income
Decrease; Decrease
After speaking to the company's sales manager, a customer placed a large order. The customer has no immediate need for the products, so the customer asked the company to wait 60 days before delivering the products. In this case, the company should recognize revenue for the sale when the order is
Delivered to the customer
items to add back to net income for SCF operating activities section
Depreciation Expense; Amortization Expense; Depletion Expense; Losses (from sale of assets, etc.); Loss under equity method of accounting for Investments; Amortization of Premium on Bond Investment; Amortization of Discount on Bonds Payable; Decreases in current assets (accounts receivable, inventory, prepaid assets, etc.); Increases in Current Liabilities (accounts payable, deferred taxes, etc.); Increase in Unearned Revenue.
When is the guidance for determining fair value as provided in the fair value framework presented in ASC 820, "Fair Value Measurement," least likely to apply?
Determination of the fair value of legal services received in exchange for an entity's common stock.
A statement of financial position provides a basis for all of the following except
Determining profitability and assessing past performance
Nonrecognize sub event
Did not exist at BS date - sale of bond/capital stock - business combination - loss of plant / inv due to fire and disaster - changes in FV - Significant commitments - loss on receivables Public: through FS issuance Private: through date FS are available to be issued
what is a difference between the IASB & FASB definition of expense
Difference The IASB Framework "expense" element includes losses whereas the FASB Framework treats "expenses" and "losses" as separate elements.
what is a difference between the IASB & FASB definition of Income:
Difference The IASB Framework element is "income" which includes both revenues and gains, whereas the FASB Framework treats "revenue" and "gains" as separate elements.
Concentration of product lines footnote
Disclose the vulnerability to concentrations; disclose if: (1) concentration exists at FS date (2) concentration can cause a financially disruptive event (3) it is reasonably possible that loss / severe impact will occur in near term
Which of the following is correct concerning financial statement disclosure of accounting policies?
Disclosure of accounting policies is an integral part of the financial statements
Which of the follow is required by Regulation S‐K to be included in the Management's Discussion and Analysis (MD&A) that is part of the 10‐K?
Discussion of risks and uncertainties.
Under the guidance for recognition of revenue from contracts with customers (ASC 606), a contract modification is accounted for as a separate contract if the additional promised goods are <List A> and the price for these additional goods is <List B>. List A List B
Distinct; their standalone selling price
According the the FASB's conceptual framework, which of the following decreases shareholder equity?
Distributions to owners
Common Stock Yield =
Dividend per Common Share / Market Price per Common Share
One of the elements of financial statements is comprehensive income. Comprehensive income for a period excludes changes in equity resulting from which of the following?
Dividends paid to shareholders
Consolidating entries
Dr. RE, C/S, APIC of sub Cr. investment in sub and NCI Dr. identifiable AAP, goodwill
Short cut for determining if options are anti-dilutive
EP < Avg MP = in the money (dilutive) EP > Avg MP = out of the money (anti-dilutive)
Proprietary funds
Enterprise (>=50% self sufficient) Internal service (cost/reimbursement services and serves government primarily; even if there are charges or contracts with other companies)
Assumptions come:
Entirely from your GUT Entity going concern unit of measurement time period
Dollar value LIFE
Estimate of change in price levels required - Price index = EI at CY cost / EI at base year cost
For the purpose of estimating income taxes to be reported in personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their Assets Liabilities
Estimated current value Estimated current amount
According the the FASB's conceptual framework, the expense recognition principle of associating cause and effect is best exemplified by
Estimating credit loss expense on the basis of net credit sales
For $50 a month, Rawl Co. visits its customers' premises and performs insect control services. If customers experience problems between regularly scheduled visits, Rawl makes service calls at no additional charge. Instead of paying monthly, customers may pay an annual fee of $540 in advance. For a customer who pays the annual fee in advance, Rawl should recognize the related revenue:
Evenly over the contract year as the services are performed
Partnerships
Exact method Goodwill method Bonus method
Cost of premiums given for donations in NFP
Example of fundraising costs (a support activity) total contribution received - FV of premiums = contribution revenue
What is the IFRS equivalent of non-monetary exchanges
Exchange of similar assets (no gain) Exchange of dissimilar assets (exchange w/ commercial substance)
Capital outlays
FA expenditures Expenditures - capital outlay VP or Cash
______ writes GAAP
FASB
NFP financial reporting and statements required
FASB = full accrual Statement of financial position Statement of activities Statement of cash flows (OIF)
U.S. Public companies guidance is:
FASB Accounting Standards codification
Not for Profit
FASB not GASB - codification 958 - donors, members, creditors use the FS - full accrual of accounting - statement of financial position (BS) - statement of activities - statement of cash flows
Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
FIFO
In a period of rising prices, what do LIFO and FIFO produce
FIFO = higher EI, lower COGS LIFO = lower EI, higher COGS
objectives of governmental reporting
FS = Timeliness, consistency, comparability
Disclosures required for financial instruments
FV and CV is disclosed Disclosure of credit risk Market risk disclosure is recommended but not required
Recognizing gain in nonmonetary exchange
FV of asset given up - BV of asset given up
What is the assumption with all non-monetary exchanges
FV of asset(s) given up = FV of asset(s) received
Balance sheet for retirment benefits other than pensions
FV of plan assets - APBO = funded status
Formula for Funded Status of EBP
FV of plan assets - PBO = overfunded/underfunded
in a NFP marketable securities should be recorded as
FV with G/L reported in the statement of activities as of the balance sheet date
Equity securities (no significant influence = < 20% or investment in PS)
FVTNI = valued at FV with changes in NI Practicability exception - if no readily determinable FV; can measure at cost +- observable price change of identical or similar items less impairment; if impaired, write down to FVTNI FVTOCI (can be elected with IFRS) - G/L are never recognized in earnings, but can be reclassified in equity Div received = dividend income (to extent that it is not a liquidating dividend)
Which of the following characteristics means that information is reasonably free from error and bias?
Faithful Representation
According to FASB, neutrality relates to
Faithful representation
North Bank is analyzing Belle Corp.'s financial statements for a possible extension of credit. Belle's quick ratio is significantly better than the industry average. Which of the following factors should North consider as a possible limitation of using this ratio when evaluating Belle's creditworthiness? Fluctuating market prices of short‐term investments may adversely affect the ratio. Increasing market prices for Belle's inventory may adversely affect the ratio. Belle may need to sell its available‐for‐sale investments to meet its current obligations. Belle may need to liquidate its inventory to meet its long‐term obligations.
Fluctuating market prices of short‐term investments may adversely affect the ratio. cant be B. inventory does not effect the quick ratio
REV RECOGNITION 5 STEPS
I Identify the contract w/ the customer S Identify the separate performance obligations T Determine the transaction price A Allocate the transaction price to the separate performance obligations R recognize rev when or as entity satisfies each performance obligation
Which of the following are acceptable formats for reporting comprehensive income?
I and IV only
Forms
Form 10K - Annual, contain Financial disclosures, MD7A, audited FS - large: 60 days, accelerated: 75 days, others: 90 days Form 10Q - quarterly interim FS, contain unaudited FS, interim MDA, certain disclosures. - large: 40 days, accelerated: 40 days, others, 45 days Form 11K: annual report for EBP Form 20F & 40F: (Non U.S. 10K annual report), 40F is Canadian annual report. Form 6 K: foreign semiannually Form 8k: major events Form 3, 4, 5: for 10% owners
Forms 11-K, 20-F, 40-F, and 6-K
Form 11-K - annual report of company's employee benefit plan(s) Form 20-F - non US annual report Form 40-F - Canadian annual report Form 6K - semiannual by foreign private investors, and constrain unaudited FS (similar to 10-Q)
beginning fv of plan assets x expected rate of return
Formula to find expected return on plan assets in net periodic pension cost
key concepts in GASB
Fund structure Fund Accounting External reporting Fund = checkbooks
Funded status of pension plan
Funded status = PA - PBO funded = non-current asset unfunded = current liability to extent that benefits > FV of PA; remaining = non-current liability all of the plans within the funded or overfunded category are aggregated and presented together w/in that category
PV x (1+r)^n
Future Value of $1 =
Components of basic financial statements
G-W, fund FS, notes, and reconciliation w/in notes from fund to G-W
FC transactions
G/L computed on BS dates and reported to NI - hedge value based on forward rates - value of liability/asset based on spot rates
bond retirement before maturity
G/L on difference between CV and price paid is recognized in period of retirement
Debtor entries in troubled debt restructuring with transfer of assets
G/L on disposal = FV - NBV of asset G/L on restructuring = CV of payable - FV of asset
Debtor entries in troubled debt restructuring with transfer of equity
G/L on restructuring = CV of payable - FV of equity
GAAP vs IFRS NBV calculation
GAAP: historical cost - AD - impairment IFRS: FV on revaluation date - subsequent AD - subsequent impairment (allows GAAP method as well)
Goodwill impairment GAAP vs IFRS
GAAP: reporting unit; allows qualitative assessment first (more likely than not) CV- FV = impairment to extent of goodwill balance IFRS: cash generating unit; CV compared to recoverable amount; loss allocated to goodwill then on a pro rata basis to other assets
Blended presentation for component unit
GR = discrete = in component unit column after business activities (1) exclusively serves primary government, OR (2) governing body is substantially the same (majority is either elected by governing body or they are the same)
govt wide statements
GRaSPP=S (internal fund) = gov activities. E enterprise = business type activities Fiduciary reports = not reported Classifications of major funds.
The effect of a material transaction that is infrequent in occurrence and unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in a
Gain or loss
items to subtract out to net income for SCF operating activities section
Gains (from sale of assets, etc.); Amortization of Discount on Bond Investment; Amortization of Premium on Bond Payable; Undistributed income under equity method of accounting for Investments; Increases in Current Assets (accounts receivable, inventory, prepaid assets, etc.); Decreases in Current Liabilities (accounts payable, deferred taxes, etc.); Decrease in Unearned Revenue.
Governmental funds
General Fund (taxes/general revenue) Special Revenue (restricted/committed for purposes other than capital projects and debt service) Capital Projects (major asset either purchase or construction) Debt Service (general obligation debt or debt for CP) Permanent (principal is not expendable)
what are comprehensive basis of accounting other than Generally Accepted Accounting Principles?
I. Basis of accounting used by an entity to file its income tax return; II. Cash receipts and disbursements basis of accounting.
he following financial statements are NOT appropriate as personal financial statements
I/S & statement of CF
Valuation of inventory
General rule: stated on books at cost, include freight in Precious metals: NRV which is selling price less costs of disposal
Continuation of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of
Going concern
A newly acquired plant asset is to be depreciated over its useful life. What is the basis for this accounting method?
Going-concern assumption
purchase price - FV of net assets
Goodwill using the equity method =
FV of sub - FV of sub's net assets
Goodwill using the full goodwill method =
Government wide financial statements
Government activities (GRaSPP and S), business type activities (E) and component units; NOT fiduciary funds Statement of net position Statement of activities [RUN]
acctg for governmental funds
Governmental = mod accrual Book Close Budget Budget Activity Activity Encumbrances Encumbran to the BS Book to NY Budget Actvity Encumb Close at the same amount Budget Activity Encum
sales (net) - cost of goods sold / sales (net)
Gross (profit) margin
According the the FASB's conceptual framework, comprehensive income includes which of the following?
Gross margin and Operating Income
In a comparison of year 2 to year 1, Neir Co.'s inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged. Which of the following statements explains the increased inventory turnover ratio? Cost of goods sold decreased. Accounts receivable turnover increased. Total asset turnover increased. Gross profit percentage decreased.
Gross profit percentage decreased. If we assume that cost of goods sold has increased from 100 to 150 and average inventory has remained unchanged at 50 then the following ratios result: Cost of goods sold/Average inventory: 100/50 =2 150/50=3 Thus, if cost of goods sold increases while inventory remains unchanged, then the inventory turnover ratio will increase. Increase in COGS= decrease in Gross Profit % Sales− Cost of goods sales 200-100=100 200-150=50 higher COGS= lower GP %= increased inventory turnover
Translation approach
I/S items translated at average rate B/S items translated at EOY rate C/S and APIC translated at historical rate Roll-forward EOY RE Plug G/L CTA to OCI to make BS balance
The appropriate attribute for measuring plant assets is
Historical cost
what is used in measuring inventory at lower of cost or market.
Historical cost, replacement cost, and net realizable value
prospectively (only affects current and future years, no adjustment to prior financial statements)
How is change in accounting estimate reported?
2 (amortization expense and interest expense)
How many expenses are there in the journal entry for a finance lease?
1 (interest expense)
How many expenses are there in the journal entry for a operation lease?
2 x (1/n) x (cost - A/D)
How to find depreciation expense using the double declining balance depreciation method
Which of the following are acceptable methods for reporting comprehensive income under IFRS? I. One comprehensive income statement. II. Two statements: an income statement and a comprehensive income statement. III. In the statement of owner's equity.
I & II
US GAAP Vs. IFRS nonmonetary exchange
IFRS - Dissimilar = GL Recognized Similar = no gain recognized
P- present value of the sum of the lease payments and residual value is equal to or exceeds the underlying asset's fair value C- Collection of the lease payments is probable
If none of the OWNES criteria is met, but these two things are, the lease is treated as a direct financing lease by the lessor
For Year 1, Pac Co. has a standard assurance-type warranty on its equipment. It estimated its 2-year equipment warranty costs based on $100 per unit sold in Year 1. Experience during Year 2 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported
In Year 2 income from continuing operations
asset sales price - fair value
In a sales-leaseback transaction, what is recorded as a financing liability
carrying value of payable - FV of assets given up
In a troubled debt restructuring, what would the debtor (troubled party) recognize as a gain
ending inventory at current year cost / ending inventory at base year cost
In dollar value lifo, the price index =
equity method
In parent company accounting for investment in sub, what is the method used when the investment in sub changes (adjusts for sub's net income and decreases with dividends received)
Cost method
In parent company accounting for investment in sub, what is the method used when the investment in sub doesn't change (no adjustments for earnings or dividends)
Filigree Corporation prepares its financial statements in accordance with IFRS. Filigree acquired equipment by issuing 5,000 shares of its common stock. How should this transaction be reported on the statement of cash flows? As an outflow of cash from investing activities and an inflow of cash from financing activities. As an inflow of cash from financing activities and an outflow of cash from operating activities. At the bottom of the statement of cash flows as a significant noncash transaction. In the notes to the financial statements as a significant noncash transaction.
In the notes to the financial statements as a significant noncash transaction. the transaction did not use cash... so would not be on the SCF
Lower of cost or Market and lower of cost and NRV
In the ordinary course of business when the utility of goods is no longer as great as their costs - loss on sale expected Recognize the loss in the current period. Reversal of write down is allowed for IFRS but not GAAPf
The effect of a change in accounting principle that is inseparable from the effect of a change accounting estimate should be reported
In the period of change and future periods if the change affects both
Which of the following describes the appropriate reporting treatment for a change in accounting estimate?
In the period of change and future periods, if the change affects both
The financial statement that provides a summary of the firm's operations for a period of time is the
Income statement
statement of assets and liabilities and equity statement of income
Income tax Basis Financial Statements
How is impairment measured for a discontinued business component?
Initial loss is recognized for recording impairment of component once classified as HFS (write down to FV - costs to sell); reversal is allowed to extent of previously recognized cumulative loss
When revenue from contracts with customers is recognized over time, the progress toward complete satisfaction of a performance obligation may be measured using the
Input method
Lender recognition of income with issuance costs
Interest earned - accrued interest receivable = amount of deferred interest income Interest earned = [PV of loan w/ fees * interest rate w/ fees] Accrued interest receivable = [PV of loan * interest rate w/o fees]
carrying value at the beg. of the period x market rate
Interest expense using the effective interest method on bonds=
Under ASC 606, adjustments of the transaction price to reflect the time value of money results in
Interest income or expense that is presented in the income statement separately from revenue
Which components of the SoCF is different for IFRS?
Interest paid (CFO or CFF) Interest received (CFO or CFI) Dividends paid (CFO or CFF) Dividends received (CFO or CFI) Taxes paid (ANY)
IFRS differences in cash flows
Interest rec: CFO or CFI Interest paid: CFO or CFF Div Rec: CFO or CFI Div Paid: CFO or CFF Taxes paid: CFO, CFI, CFF
On August 15, Benet Co. sold goods for which it received a note bearing the market rate of interest on that date. The 4-month note was dated July 15. Note principal, together with all interest, is due November 15. When the note was recorded on August 15, which of the following accounts increased?
Interest receivable
Which of the following organizations is responsible for setting International Financial Reporting Standards? Financial Accounting Standards Board. International Accounting Standards Committee. Financial Accounting Committee. International Accounting Standards Board.
International Accounting Standards Board.
Shipping costs incurred by a consignor on transfer of goods to a consignee should be considered as
Inventory cost to the consignor
Equity method (significant influence > 20%)
Investment account: purchase price + %NI - %dividend - excess depreciation = ending balance Income from sub account: %NI - excess depreciation = income from sub Joint ventures = accounted for under equity method
General purpose external financial reporting of a corporation focuses primarily on the needs of which of the following users?
Investors and creditors and their advisors
Financial information is most likely to be verifiable when an accounting transaction occurs that
Involves an arm's-length transaction between two independent parties
treasury stock
Is a corporation's own stock that has been issued but subsequently reacquire and is still being held by that corporation. - cost method (GL calculated upon reissue) or legal method (par value method) (GL calculated immediately upon repurchase) - recorded as a direct adjustment to SE - treasury stock does not affect NI and RE will never go up.
Going concern date
Is from issue date, - doubt any will be able to pay obligations as they become due. - evaluation should take place at interim and YE - do they have any plans to mitigate risk. Must disclose if it is allievated IFRS does not provide guidance & requires disclosures when management is aware of uncertainties. And is 1 aYR from BS date.
Calculation of outstanding shares
Issued - treasury shares
what is the order of the offering process?
Issuer -> Underwriter -> Dealer -> Public
Noncurrent debt should be included in the current section of the statement of financial position if
It matures within the year and will be retired through the use of current assets
Inventory cost flow assumptions allowed under IFRS
LCNRV (FIFO or weighted average or retail); LIFO not allowed
Inventory cost flow assumptions allowed under GAAP
LCNRV (FIFO or weighted average) vs LCM (LIFO or retail)
In a period of rising prices, which one of the following inventory methods usually provides the best matching of expenses against revenues?
LIFO
In periods of rising costs, which one of the following inventory cash flow assumptions will result in higher cost of sales?
LIFO
Generally, which inventory costing method most closely approximates the current cost for each of the following? Cost of Goods Sold Ending Inventory
LIFO; FIFO
Papa Company acquired land with an office building on it from its subsidiary, Sonny Company, for $110,000. Prior to the sale, Sonny's carrying value of the land was $60,000 and its net carrying value of the building was $50,000. At the time of the transaction, Papa appropriately determined that the land had a fair value of $75,000 and the building had a fair value of $35,000. At what amount should the land and building be reported on Papa's consolidated statements prepared immediately after the transaction? Land Building $75,000 $35,000 $55,000 $55,000 $60,00 $50,000 $50,000 $60,000
Land Building $60,00 $50,000
What is the public flow requirement for large accelerated vs accelerated
Large > $700 mil Accelerated > $75 mil
If none of OWNES are met, what is the lease classification
Lessee = operating lease Lessor = direct financing (if PV of payments and any RV >= FV AND collection is probable) or operating (if only one of PC met)
lease payments
Lessee will include all of the following: R required contractual fixed payments E Exercise option reasonbly assured P purchase price at the end of the lease O only indexed or rate variable payments R residual guarantees likely to be owned T termination penalties reasonbly assured May or may not include N nonlease components lessee payments will exclude G guarantees of lessor debt by the lessee O other variable lease payments initial direct costs should be capitalized in the lease
According the the FASB's conceptual framework, which of the following is an essential characteristic of a liability?
Liabilities are obligations resulting from previous transactions or events
Distinguishing liabilities from equity
Liabilities: - mandatorily redeemable and represent an unconditional obligation to the issuer redeem the instrument by transferring assets at a sepcified ate - financial instruments, other than outstanding shares, that represent an obligation to repurchase the issuers equity shares by transferring assets - financial instruments that represent an obligation to issue a variable number of shares
long term assets
Long-term investments, plant assets, certain deferred charges, and intangible assets are non-current assets
Changes in pension liability in fiduciary pension fund
Loss = deferred outflow Gain = deferred inflow Change in actuarial assumption = amort over average service life Expected vs actual return on plan assets = amort over 5 years Unearned portion of PSC from plan amendments = amort over remaining service life
According the the FASB's conceptual framework, comprehensive income includes which of the following?
Loss on discontinued operations
IFRS revaluation losses / gains
Losses go to NI unless reversing prior period gain from OCI; gains got o OCI unless reversing prior period loss from NI
According the the FASB's conceptual framework, which of the following best describes the distinction between expenses and losses?
Losses result from peripheral or incidental transactions, and expenses result from ongoing major or central operations of the entity.
Treatment for PPE maintenance vs improvements
Maintenance/repairs = expense Improvements = increase UL or improves productivity = capitalize and depreciate over useful life
How are fund FS presented?
Major funds are reported separately and non-major funds are aggregated
1st footnoote
Major products / services and its principal markets
Regarding financial accounting for public companies, the role of the SEC as currently practiced is to
Make rules and regulations pertaining more to disclosure of financial information than to the establishment of accounting recognition and measurement principles.
Which of the following is true regarding the comparison of managerial and financial accounting?
Managerial accounting need not follow GAAP, while financial accounting must follow them.
Remeasurement approach
Monetary BS items translated with EOY rate Non-monetary BS items translated with historical rate I/S items (except for BS items like depreciation) translated with weighted average rate Plug #1 = EOY RE to make BS balance Plug #2 = G/L to NI to get to adjusted EOY RE
Price-Earnings Ratio (P/E Ratio) =
Market Price for a Common Share / Earnings per (Common) Share (EPS)
Conventional retail inventory method (way to approximate LCM for retail)
Market: beginning inventory + purchases + markup = retail available for sale - sales - markdowns = EI in retail Cost: EI in retail * [AFS @ cost / AFS @ retail]
Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of:
Matching
When credit loss expense is estimated on the basis of the percentage of past actual losses from bad debts to past net credit sales, and this percentage is adjusted for anticipated conditions, the accounting concept of
Matching is applied
statement of assets and liabilities statement of revenues collected and expenses paid
Modified Cash Basis Financial Statements
Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis?
Monetary Unit
Direct financing lease
Most risks & rewards. (both PC) lessee does not gain control. lessor will derecognize the asset and recognize a net investment. any gain will be deferred and amortized over the life of the lease and any loss will be recognized immediately. Lease rec. Residual asset fixed asset each period: cash interest income lease rec.
Weighted average
Must be periodic method. The weighted average is determined by dividing the total costs of inventory available by the total number of units of inventory available.
When a full set of general-purpose fianancial statements is presented, comprehensive income and its components
Must be reported in a presentation that includes the components of other comprehensive income and their total
NCI balance using partial goodwill
NCI = FV of sub's NA * nci %
NCI balance using full goodwill
NCI = FV sub * nci %
RE formula
NI - dividends declared +- prior period adjustments +- accounting changes reporting retrospectively = RE
NOL treatment
NOL arising 2018-2020 can be carried back 5 years (with no limitation) = carry-back benefit = dr. refund receivable and cr. IT benefit (amount used * enacted rates) NOL can be carried forward indefinitely (with 80% of pretax income limitation in 2021 and forward) = carry-forward benefit = dr. DTA, cr. IT benefit and valuation allowance if necessary
Discontinued operations are:
NOT REVENUES... SPECIAL ITEM OF DISCLOSURE
What is generally the first footnote in the notes to FS
Nature of operations footnote (descriptions and locations of primary markets and products)
Profit Margin (on Sales) =
Net Income / (Net) Sales
Times Preferred Dividend Earned Ratio =
Net Income / Annual Preferred Dividend Obligation
Return on Owners' (all Stockholders') Equity =
Net Income / Average Stockholders' Equity
Return On Equity=
Net Income/average shareholder's equity ROA* Leverage
Normal Operations
Net Sales (including goods, services, and rentals) Cost of Sales (including goods, services, and rentals) Gross margin (Sub-Total) Selling expenses General and administrative expenses Depreciation expense Income (loss) from operations (Sub-Total)
Statement of CF format
Net cash provided by used in operating act + "" investing - "" financing +- net increase / decrease in cahs Cash and cash equiv at beg of year cash and cash equiv at end of year
According to the FASB's conceptual framework, what does the concept of faithful representation in financial reporting include?
Neutrality
During the current year, Krey Co. increased the estimated quantity of copper recoverable from its mine. Krey uses the units-of-production depletion method. As a result of the change, which of the following should be reported in Krey's current year financial statements? Cumulative Effect Pro Forma Effect of a Change in of Retrospective Accounting Application of New Principle Depletion Base
No No
Which of the following information should be disclosed as supplemental information in the Statement of Cash Flows? Cash flow per share Conversion of debt to equity Yes Yes Yes No No Yes No No
No Yes
Debtor entries in troubled debt restructuring with modification of terms
No change to the CV of payable (or recognition of gain) unless carrying amount exceeds the total future cash payments with the new terms
land Cost
No depreciation - includes purchase price brokers commissions title and recording fees legal fees draining of swamps clearing of brush and treees site development existing obligations costs of razing or demolition less proceeds from sale of existing buildings, etc
Summary of Significant Accounting Policies
No numbers or details Footnote 1 or 2 - depreciation method - basis of consolidation - amortization of intangibles - inventory pricing - use of estimates - FY definition - criteria for which investments are cash equivalents
Hahn Co. prepared financial statements on the cash basis of accounting. The cash basis was modified so that an accrual of income taxes was reported. Are these financial statements in accordance with the modified cash basis of accounting? Yes. No, because the modifications are illogical. No, because there is no substantial support for recording income taxes. No, because the modifications result in financial statements equivalent to those prepared under the accrual basis of accounting.
No, because the modifications result in financial statements equivalent to those prepared under the accrual basis of accounting. Modification for income taxes alone will not result in financial statements equivalent to those prepared under accrual‐basis accounting. Only if all transactions and accounts are converted to the accrual basis would the statements be equivalent.
Under ASC 606, which of the following methods, if any, are acceptable for estimating the amount of variable consideration in contracts with customers? Adjusted Market Minimum Amount in the Assessment Range of Possible Amounts
No; No
hen an entity changes the expected service life of a depreciable asset because new information has been obtained, how should the change be reported? By By Disclosure of Retrospective Pro Forma Effects Application on Prior Periods
No; No
Under ASC 606, which of the following, if any, determines the transaction price of a contract with a significant financing component? Undiscounted Cash Flows Variable Consideration
No; Yes
A material event that is unusual in nature or infrequent in occurence should be reported separately on the income statement as a component of income
No; Yes ; Before results of discontinued operations
beg noncontrolling interest + NCI share of sub's net income - NCI share of sub's dividends
Noncontrolling interest after the acquisition date =
FV of sub x noncontrolling interest %
Noncontrolling interest using the full goodwill method =
FV of sub's net identifiable assets x noncontrolling interest %
Noncontrolling interest using the partial goodwill method =
The the FASB's conceptual framework classifies gains and losses based on whether they are related to an entity's major ongoing or central operations. These gains or losses may be classified as
Nonoperating or Operating
Fund balance classifications
Nonspendable = inventory, prepaid, permanent fund principle Restricted = limited by external source Committed = used for specific purposes pursuant to constraints by government highest level Assigned = government intends to use for specific purpose Unassigned = residual for general fund
An accrued expense can be described as an amount
Not paid and currently matched with earnings
long term liabilities
Notes and bonds payable and mortgages payable are long-term liabilities.
if any one of the criteria are met the lease will be a finance lease by the lessor and a sales type lease by the lessor (operating lease if none are met)
O ownership of the underlying asset transfers from the lessor to the lessee by the end of the lease term W the lessee has the written option to purchase the underlying asset, the option is the one that the lessee is reasonably certain to exercise N the net present value of all of the lease payments and any guaranteed residual value is equal to or substantially exceeds the underlying assets FV (905) E the term of the lease represents the major part of the economic life remaining for the underlying asset (75%) S the asset is specialized such that it will not have an expected, alternative use to the lessor when the lease term ends.
Operating activities direct vs indirect method
OA = all CA except cash and cash equiv OL - all accruals except interest bearing liab. direct : start with cash collected from customers - cash paid for operating exp. (ignore NI, depre, G/L) Revenues - increase in rec. + Decrease in rec. + increase in unearned rev. - Decrease in unearned rev. = cash received from customers Outflows COGS + increase in inventory - decrease in inventory - increase in AP + decrease in AP = cash paid to suppliers Salaries and wages exp. - increase in wages pay. + decrease in wages pay. = cash paid to employees other operating exp - decrease in prepaid exp + increase in prepaid exp + decrease in accrude liab. - increase in accrued liab. = cash paid for other exp. indirect: a reconsiliation. start with NI + depre + losses - gains (ignore cash rec and paid) NI + depre/ amort + losses - gains / amort bonds premium - equity earnings - (+-) change in OA + (+-) change in OL = CFO
Determination of amortization base for SL amortization of ROU asset in financing lease by lessee
OW met = useful life of asset is used NES met = shorter of useful life and lease term
A promised asset is transferred in full satisfaction of a performance obligation in a contract when the customer
Obtains control of the asset
premium
On bonds payable, if the market rate is lower than the stated rate, it results in a
When is income from discontinued operations used?
Once a component is classified as "held for sale" and disposal of business unit/activity represents a major strategic shift
On January 1, Year 1, Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for 5 years. Brecon's Year 1 multi-step income statement should include
One-fifth of the cabinet costs in selling expenses
An entity entered into a contract to construct a building. Based on the contract's terms, the entity appropriately determined that the performance obligation in the contract will be satisfied over time. At an early stage of the contract, the entity cannot reasonably measure the outcome of the contract, but it expects to recover the costs incurred in the construction of the building. The revenue from the contract should be recognized
Only to the extend of the costs incurred
Special items
Only under GASB. Unusual or infrequent - sales of certain gov capital assets - termination benefits resulting from workforce reductions - significant forgivness of debt.
On September 30, Year 1, a component that represents a major line of an entity's business was properly classified as held for sale. This transaction is probable and is expected to qualify for recognition as a completed sale within 1 year. The component's operating loss for the period October 1 through December 31, Year 1, should be included in the Year 1 income statement as part of
Operating gain or loss of the discontinued component
governmental financial reporting
Operational accountability: government wide FS Fiscal accountability: Fund financial statements Include MD&A, statesments, Notes, required supplementary info. Basic fs are the gov wide, notes, and fund statements. integrated approach requires a reconciliation of the fund FS to the gov wide statements.
What is excluded from the Codification?
Other Comprehensive basis of accounting Cash basis accounting Income tax basis accounting Regulatory accounting principles (e.g., insurance) Governmental accounting standards
Non-Operating
Other revenues and gains: Interest income Gain on sale of fixed assets (e.g., equipment) Other income Other expenses and losses: Interest expense Loss on sale of fixed assets (e.g., equipment) Income before unusual items and income tax Unusual or infrequent items Loss on sale of available-for-sale securities
Components of OCI
PUFIE[R] Pensions (actuarial G/L, PSC from plan amendments, and existing obligation) UHG/L for AFS debt securities Foreign currency translation adjustment Investment specific credit risk on AFS debt securities (CECL) Effective portion of CF hedge Revaluation surplus (IFRS only)
Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during the year just ended. The cumulative effect of this change should be reported in Lore's financial statements for the year as a
Prior-period adjustment resulting from the correction of an error
During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept
Periodicity
Moving average
Perpetual Computes the weighted average costs after each purchase
According the the FASB's conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called
Predictive value
According to the IASB Framework for the Preparation and Presentation of Financial Statements, the fundamental qualitative characteristic of relevance includes Predictive value and feedback value. Verifiability, neutrality, and representational faithfulness. Predictive value and confirmatory value. Comparability and timeliness.
Predictive value and confirmatory value.
Book Value per Preferred Share =
Preferred Shareholders' Equity (including dividends in arrears) / Number of Outstanding Preferred Stocks
FV / (1+r)^n
Present Value of $1 =
The income approach valuation technique for measuring fair value requires
Present value of future cash flows.
According the the FASB's conceptual framework, which of the following attributes should not be used to measure inventory?
Present value of the future cash flows
The market approach valuation technique for measuring fair value requires
Prices and other relevant information of transactions from identical or comparable assets.
Contingency percentages and reporting requirements
Probable = accrue and disclose; with range = best estimate or smallest in range Reasonably possible = disclose Remote = no disclosure (unless debt guarantee = disclosure) If gain = disclosure if probable / reasonably possible (gain from liability insurance is never recorded until realized); line of credit = disclosed
recognition and measurement of loss contingency
Probable = likely to occur = record Reasonably possible = more than remote, but less than likely = disclose remote = Slight change of occuring = ignore (general rule) IFRS: greater than 50%
financing activity =
Proceeds from a note payable.
Which of the following is not a required component of the 10‐K filing?
Product market share.
Which of the following is not a theoretical basis for the allocation of expenses?
Profit Maximization
A change in the estimated useful life of a depreciable asset should be reported
Prospectively
According to the FASB's conceptual framework, for financial reporting to be useful, it must
Provide information useful for making business and investment decisions
what are purposes of the fair value framework as set forth in ASC 820, "Fair Value Measurement"?
Providing a framework for determining fair value for GAAP purposes is one of the purposes of the fair value framework, as is providing a uniform definition of "fair value" and establishing expanded disclosures about fair value when it is used.
Segment Reporting
Public co. Are required. - Breakthrough out any segment reporting 10% or more of sales, profit, assets. - total breakout must exceed 75% of income. - include inter company sales in the 10% - take out loss when calculating profit threshold - profit threshold does not include interest income - when determining the 75% amount do not include inter company amounts. - disclose separately amount of inter company sales and unaffiliated customers.
alternatives for expenditure recognition
Purchase method Buying item: Expenditure VP Use of item: No entry On hand at YE: Supplies inventory Nonspendable fund balance - inv Consumption method Buying item Supplies inventory VP use of item: Expenditure Supplies inv. on hand at YE: No Entry
Purchase vs consumption method for supplies inventory
Purchase method = expenditure at purchase, dr. inventory for remaining balance and non-spendable FB Consumption method = inventory at purchase and expenditure when used
Cash Flows from Investing Activities outflows=
Purchase of Long-term Assets Lending (to others) Investment in Debt and Equity Securities (of others) (Held-to-Maturity and Available-for-Sale Classifications) Purchase of Other Productive Assets (e.g., Patent; but not Inventory)
net income / average total equity
Return on equity
income before interest income, interest expense, and taxes / sales (net)
Return on sales
Modified accrual revenue and expense recognition
Revenue = when measurable and available (due and collected within 60 days after YE) Expense = when incurred / paid
Which of the following items requires a prior period adjustment to retained earnings?
Revenue of $5 million that should have been deferred was recorded in the previous year as earned
What is an RE appropriation?
RE that have been set aside by action of BoD for specific use; distinction is only in BS
the process of reporting an item in the financial statements of an entity is:
RECOGNITION
Contracts that transfer ownership for governmental lessee (proprietary/fiduciary fund)
ROU asset and lease liability like commercial accounting
Leases other than short term and contracts that transfer ownership for governmental lessee (proprietary/fiduciary fund)
ROU asset and lease liability like commercial accounting finance lease; ROU asset amortized over lesser of UL or lease term
Successful use of leverage is evidenced by a
Rate of return on investment greater than the cost of debt.
corrections of errors are reported in
Reatined Earnings
According the the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is
Recognition
the process of formally recording and reporting an item as one of the elements of financial statements
Recognition
Consignment agreement
Recognize revenue when sold to 3rd party (or upon expiration of sale period); consignee recognizes revenue only to the extent that it is entitled to a fee
According to ASC 606, the incrememntal costs of obtaining a contract with a customer that are expected to be recovered must be
Recognized as an asset and amortized in subsequent periods
The statement of shareholder's equity shows a
Reconcilitation of the beginning and ending balances in shareholder's equity accounts.
Small stock dividend (< 20-25%)
Recorded at FV (plug APIC)
Large stock dividend (> 20-25%)
Recorded at par value (cr. C/S only)
Reissuance / revised FS
Reissuance: do not recognize sub events between these dates unless adjustments is required but GAAP Revised: disclose dates which sub events have been evaluated for private. SEC does not require disclosures.
What is the S-X regulation?
Relates to SEC filings; companies need 2 B/S and 3 of all other statements (I/S, SOCSHE, and SOCF)
According to Statements of Financial Accounting Concepts, predictive value related to
Relevance
According to the FASB's conceptual framework, the two fundamental qualitative characteristics that make accounting information useful for decision making are
Relevance and faithful representation
1. Balance Sheet 2. Income Statement 3. Remeasurement gain/loss on Income Statement
Remeasurement Method financial statement order
When is remeasurement method used?
Remeasurement is used to restate financial statements from the foreign currency to the entity's functional currency when: -reporting currency = functional currency -financial statements must be restated in the entity's functional currency prior to translating from the functional currency to the reporting currency (local currency isn't functional currency)
According to the FASB's conceptual framework, which of the following most likely does not violate the concept of faithful representation
Report data on segments having the same expected risks and growth rates to analysts estimating future profits
what is form 8-k?
Report significant events affecting the company
Required vs modified approach to infrastructure assets for gov't
Required = capitalize and depreciate Modified = if government isn't able to arrive at cost data = no capitalization or depreciation
On January 1, Year 6, Roem Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $500,000 increase in the January 1, Year 6, inventory. Assume that the income tax rate for all relevant years is 30%. If Roem issues financial statements for Year 6 only, the cumulative effect of the accounting change on all prior periods should be reported in the year-end
Retained earnings statement as a $350,000 addition to the beginning balancw
The correction of an error in the financial statements of a prior period should be reported net of applicable income taxes, in the c urrent
Retained earnings statement as an adjustment of the opening balance
How is a change in accounting entity treated?
Retrospective (all presented statements are restated to include the change in consolidated entity)
Comprehensive income does not include the following:
Retrospective effects of changes in accounting principle; Prior period adjustments.
income statement approach for retirement benefits other than pensions
S current service cost I interest cost on APBO R - return on plan assets A amortization of prior service cost G - gains and losses E amortization / expense transition amount = net postretirement benefit cost
general purpose government units
SE separately elected by gov body E L legally separate F fiscally independent of other state and local governments.
When referring to IFRS, which of the following are NOT included? IASs. SEC. IFRICs. IFRS Interpretations.
SEC
defined benefit plan
SIR AGE defines the benefits to be paid to employees at retirement. contributions are computed using actuarial assumptions of future benefit payments. - employee has to decide how much money it needs to keep contributing S current service cost I interest cost R - Return on plan assets A amortization of prior service cost G -(gains) and losses E amortization of existing net obligations or net assets Net periodic pension cost service costs = put in compensation cost Interest cost = beginning period PBO * discount rate = interest cost R = beg. FV of plan assets * expected rate of return on plan assets A = Beg unrecognized prior service cost / avg remaining service life (IFRS = exp now G = IS in the period incurred or OCI and then amortize. income smoothing. E amortization of existing Net obligation or net asset. unamortized is in AOCI. 15 years or average employee job life (greater)
Methods of depreciation
SL, units of production [depreciation = (cost - SV)/(total units) x units produced or hours spent], sum of year's digits (depreciation expense = [cost - SV]x(remaining UL / SoYD)), and double declining (depreciation expense = NBV x 2/N)
Sale of equity security
SP - CV at time of sale - realized GL on the IS
A company's wages payable increased from the beginning to the end of the year. In the company's statement of cash flows in which the operating activities section is prepared under the direct method, the cash paid for wages would be Salary expense plus wages payable at the beginning of the year. Salary expense plus the increase in wages payable from the beginning to the end of the year Salary expense less the increase in wages payable from the beginning to the end of the year. The same as salary expense.
Salary expense less the increase in wages payable from the beginning to the end of the year. In a statement of cash flows in which the operating activities section is prepared using the direct method, the cash paid for wages would be equal to the accrual‐basis salary expense, plus/minus any decrease/increase in the wages payable account. (The logic is essentially the same as an accrual‐basis to cash‐basis adjustment.)
Sale-leaseback when there is a sale (when is there a sale and what are the entries)
Sale = control is transferred (no OWNES = operating lease) If purchase option = assets FV at exercise and alternative assets are available in market place = SALE Significant guarantee of RV = NOT SALE Entries: (1) Inception = cash, de-recognize asset, and recognize gain (FV-NBV); if there is an excess of price over FV of asset leased then dr. Financing liability (2) Normal operating lease entries
Cash Flows from Investing Activities inflows=
Sale of Long-term Assets Collection of Loan Principal Disposal of Debt and Equity Securities (of others) (Held-to-Maturity and Available-for-Sale Classifications) Sale of Other Productive Assets (e.g., Patent; but not Inventory)
Some costs cannot be directly related to particular revenues but are incurred to obtain benefits that are exhausted in the period in which the costs are incurred. An example of such a cost is
Salespersons' monthly salaries
revenues - directly traceable costs - reasonably allocated costs = operating profit (loss)
Segment operating profit
FIFO
Sell the old, unsold are the newest. In periods of rising prices, FIF results in highest ending inventory, the lowest cost of goods sold, and the highest net income
freight out=
Selling expense
Debt Service fund
Set up to account for the accumulation of resources and the payment of interest and principal on all "general obligation debt" other than that serviced by enterprise funds or by special assessments in another fund.
general fund
Set up to account for the ordinary operations of a governmental unit that is financed from taxes and other general revenues
Which of the following sets of financial statements generally cannot be prepared directly from the adjusted trial balance? Income Statement, Balance Sheet, Statement of Cash Flows. Income Statement, Statement of Cash Flows. Statement of Cash Flows. Balance Sheet and Statement of Cash Flows.
Statement of Cash Flows.
What is the biggest emphasis in the estimates footnote?
Statement that estimates require judgment and that actuals will not equal the estimates
compare carrying value to the undiscounted cash flows (if carrying value is greater then move to step 2)
Step 1 (Recoverability Test) of the Impairment Test
Which equity transactions are treated as though they happened at the beginning of the year for WACSO
Stock dividends and splits
What accounting change should be applied prospectively
Straight-line method of depreciation for previously recorded assets to the double-declining-balance method
A company that wishes to disclose information about the effect of changing prices should report this information in
Supplementary information to the financial statements
Assets with donor restrictions
Temporary restriction = purpose, time, or acquisition of plant Perpetuity restriction = endowment If donations with restrictions are satisfied within 1 year, can be classified as without DR if consistently applied
Which of the following is a false statement about balance sheet disclosure of accounts receivable?
That portion of installment accounts receivable from customers which falls due more than 12 months from the balance sheet date usually would be excluded from current assets.
Arpco, Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative?
The Accounting Standards Codification
Which of the following statements includes the most useful guidance for practicing accountants concerning the FASB Accounting Standards Codification.
The Codification is the sole source of U.S. GAAP, for nongovernmental entities.
the most useful guidance for practicing accountants concerning the FASB Accounting Standards Codification.
The Codification is the sole source of U.S. GAAP, for nongovernmental entities.
The SEC has affirmed that it will recognize which of the following entities as an accounting standard-setter for filings under the securities law?
The FASB
Which of the following bodies has the original authority to set accounting standards for publicly traded companies in the US?
The Securities and Exchange Commissions (SEC)
Comprehensive Income
The change in equity from nonowner transactions total CI is NI + OCI includes - loss from discontinued operations
In which of the following situations should a company report a prior-period adjustment?
The correction of a mathematical error in the calculation of prior years' depreciation
Which of the following is a criterion for capitalization of costs incurred to fulfill a contract with a customr
The costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future
Which of the following is not a criterion that must be met for a contract with a customer to be accounted for under the revenue recognition standard?
The costs to fulfull the contract are expected to be recovered
A receivable classified as current on the statement of financial position is expected to be collected within
The current operating cycle or 1 year, whichever is longer
Which of the following situations may result in recognition over time of revenue from a contract with a customer by an entity?
The customer simultaneously receives and consumes the benefits from performance as the entity performs
Which of the following is not included in the determination of net income for the period?
The effect on prior periods of changes in an accounting period
Robin Gavaskar, who recently founded a company that produces baseball bats and balls, wants to determine her company's policy for revenue recognition. The most appropriate time to recognize revenue for the goods is when
The entity has transferred physical possession
fair value option for valuing financial assets and liabilities:
The fair value option must be applied to all interests in the same entity.
substantial support for modified cash basis requires:
The modifications must be the same as GAAP and not illogical
The advantage of the last-in, first-out inventory method is based on the assumption that
The most recently incurred costs should be allocated to the COGS
Objective of Financial Reporting
The objective of general purpose financial reporting is to provide information about the entity useful to current and future investors and creditors in making decisions as capital providers.
noncontrolling interest
The portion of equity (net assets) interest in a subsidiary not attributable to the parent company. - may have stand alone FS
Five elements of present value
The price for bearing uncertainty Expectations about timing variations of future cash flows other factors time value of money estimate of future cash flow
The fair value of an asset at initial recognition is
The price paid to acquire the asset.
what is Fair Value? (how to measure)
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of an asset should be based upon
The price that would be received to sell the asset at the measurement date under current market conditions
The cost approach valuation technique for measuring fair value requires
The price to replace the service capacity of the asset.
Under ASC 606, the transaction price generally should be adjusted for the effect of the time value of money when
The selling price of the product and the consideration promised in the contract differ significantly
Accumulated other comprehensive income is reported in which of the following financial statements?
The statement of financial position
O- ownership is transferred W- written purchase option exists N- The net present value of all lease payments > 90% of the fair value of the lease property E- the lease term is > 75% of the asset's economic life S- the asset is specialized
The this five listed criteria is met, then the lease will be classified as a sales-type lease by the lessor and a finance lease by the lessee
In its financial statements, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angles Corp. At December 31, Year 4, Pulham has a receivable from Angles. How should the receivable be reported in Pulham's Year 4 financial statements?
The total receivable should be disclosed separately
What are forms 3, 4, and 5?
These forms are required to be filed by directors, officers, or beneficial owners of more than 10% of a class of equity securities of a registered company, to ensure that they are not trading on insider information.
what is a measurement base?
This is the attribute of an account being measured and reported
Operating
Those cash flows related to transactions that flow through the income statement. Operating cash inflows include receipts from customers and interest. Cash outflows include payments to suppliers, to employers, and to taxing authorities.
A software developer enters into a contract with a new customer to sell a software license and perform installation services. The entity sometimes sells the license and installation services separately. The installation service is routinely performed by other entities and does not significantly modify the software. The entity historically provided to new customers technical support for a 5-year period for no additional consideration. The contract does not specify the terms or conditions for the technical support services. Under ASC 606, which of the following represents the performance obligations identified by the entity in this contract?
Three
A characteristic that enhances relevance and faithful representation
Timeliness
Conceptually, interim financial statements can be described as emphasizing
Timeliness over faithful representation.
Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?
To match the costs of production with revenues as earned
What is the purpose of information presented in notes to the financial statements?
To provide disclosures required by GAAP
What is the purpose of reporting comprehensive income?
To report a measure of overall enterprise performance.
Which of the following is an objective of the IFRS Foundation? To enforce the use and rigorous application of those standards. To take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings. To develop, in the public interest, a single set of high‐quality, understandable, enforceable, and globally accepted financial‐reporting standards (IFRSs) through its member associations. To require adoption of international financial reporting standards (IFRSs) globally.
To take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings.
Common Stock Dividends Pay Out Ratio =
Total Basis = Cash Dividends to Common Shareholders / Net Income to Common Shareholder Per Share Basis = Cash Dividends per Common Share / Earnings per Common Share
Debt to Equity ratio =
Total Debt (Liabilities) / Owner's Equity
Debt - Equity Ratio =
Total Liabilities / Shareholders' Equity
Debt Ratio =
Total Liabilities / Total Assets
A company's year-end comparative statement of financial position reflects the following changes from the prior year: cash increased by $40,000, total liabilities increased by $32,000, and all other assets decreased by $65,000. Which of the following statements is correct regarding the current-year change in the company's stockholders' equity?
Total assets decreased by $25,000 (40000-65000), while liabilities increased by $32,000. 32,000+25,000 = 57,000
Which of the following defines equity as it relates to a business entity
Total assets less total liabilities
An entity is calculating the income recognized in the third year of a 5-year construction contract. It uses the input method based on costs incurred to measure the progress toward completion. The ratio used in calculating income is
Total costs incurred to date to total estimated costs
In a periodic inventory system that uses the weighted-average cost flow method, the beginning inventory is the
Total goods available for sale minus the net purchases
How does holding an asset for disposal affect impairment loss under GAAP
Total impairment loss = (CV-FV) + cost of disposal
Current assets are reasonable expected to be realized in cash or sold or consumed during the normal operating cycle of business. Current assets most likely include
Trading debt securities
sale of debt securities
Trading: GL is difference between the adjusted cost (original cost plus or minus unrealized gains and losses previously recognize in NI and the selling price AFS: Selling price and original cost
1. Income Statement 2. Balance Sheet 3. Translation gain/loss in OCI
Translation method financial statement order
Garson Co. recorded goods in transit purchased FOB shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year end? Assets Retained earnings
Under; Under
When hedging, what are the underlying and notional amounts?
Underlying = what is expected to change (ex- exchange rate); specified price, rate, or other variable including an event that may or may not occur Notional amount = what we are trading on (ex- 100,000 euros); specific unit of measure (ex- currency)
Bren Co.'s beginning inventory at January 1 was understated by $26,000, and its ending inventory was overstated by $52,000. As a result, Bren's cost of goods sold for the year was
Understated by 78,000
On July 1, 2003, Roxy Co. obtained fire insurance for a three‐year period at an annual premium of $72,000 payable on July 1 of each year. The first premium payment was made July 1, 2003. On October 1, 2003, Roxy paid $24,000 for real estate taxes to cover the period ending September 30, 2004. This prepayment was made to obtain a discount. In its December 31, 2003, Balance Sheet, Roxy should report prepaid expenses of: $60,000 $54,000 $48,000 $36,000
Unexpired fire insurance premium: $72,000(1/2) = The premium covers only one year and 1/2 the year is elapsed as of December 31. $36,000 Unexpired property tax prepayment: $24,000(9/12) 18,000 Total prepaid expenses (asset) at December 31, 2003 $54,000
According the the FASB's conceptual framework, which of the following items would cause net income to differ from comprehensive income?
Unrealized holding loss on available-for-sale debt securities
Under FASB U.S. GAAP, what would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?
Unrealized loss on investments in noncurrent marketable equity securities.
use the minimum amount in range
Using GAAP, if a range is given to estimate a probable loss contingency, how do you determine the expected value
use the midpoint of range
Using IFRS, if a range is given to estimate a probable loss contingency, how do you determine the expected value
Which of the following accounting concepts states that an accounting transaction should be supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially similar measures and conclusions?
Verfiability
Specific identification number
Vin number on a car Everyone is different and an exact match to sale and inventory Used most often with high value or large items
Calculation for moving weighted average cost per unit
WA is re-calculated after each purchase
Materiality and relevance are both defined by
What influences or makes a difference to a decision maker
requirements for interim and annual financial statements to be filed with the SEC
What is the Regulation S-X?
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its small appliance group. The small appliance group represents a major line of Envoy's business. Envoy plans to sell the small appliance group with its operations. What is the earliest point at which Envoy should report the small appliance group as a discontinued operation?
When Envoy classifies it as held for sale
When is translation method used?
When the sub's functional currency is not the reporting currency
Which of the following statements is correct as it relates to changes in accounting estimates?
Whenevr it is impossible to determine whether a change in accounting estimate or a change in accounting principle ahs occurred, the change should be considered a change in estimate
on the balance sheet as part of stockholder's equity (separate from the equity of the parent company)
Where should the noncontrolling interest's share of the subsidiary's net assets be presented on the balance sheet
On October 1, Year 1, Wand, Inc., committed itself to a formal plan to sell its Kam division's assets. As a result, Kam qualified as a component of an entity properly classified as held for sale. Kam represents a major line of Wand business. On that date, Wand estimated that the loss from the disposal of assets in February Year 2 would be $25,000. However, the criteria for a writedown to fair value minus cost to sell were not met. Wand also estimated that Kam would incur operating losses of $100,000 for the period of October 1, Year 1, through December 31, Year 1, and $50,000 for the period January 1, Year 2, through February 28, Year 2. Disregarding income taxes, which of these amounts should Wand report as losses from discontinued operations in its comparative Year 1 and Year 2 income statements? Year 1 Year 2
Y1 $100,000 Y2 $75,000
On January 1, Year 1, an entity receives a payment of $20,000 for delivering a product to a customer at the end of Year 3. Based on the contract's terms, the performance obligation will be satisfied at a point in time (upon delivery of the product). The entity determined that (1) the contract includes a significant financing component and (2) a financing rate of 6% is an appropriate discount rate. What amount of interest expense and contract liability will be recognized in the entity's December 31, Year 2, financial statements? Year 2 Interest Expense Contract Liability on December 31, Year 2
Y2 Interest expense $1272 Y2 contract liability $22,472
On August 31, Year 3, Harvey Co. decided to change from the FIFO periodic inventory system to the weighted-average periodic inventory system. Harvey is on a calendar-year basis and issues 2-year comparative statements. Harvey began operations in Year 1. In its December 31, Year 4, financial statements, the effect of the change should be reported on the
Y3 balance sheet as a cumulative-effect change in the beginning balances of assets and liabilities and an adjustment of beginning retained earnings
During January of Year 6, Doe Corp. agreed to sell the assets and product line of its Hart division. The sale was completed on January 15, Year 7, and resulted in a gain on disposal of $900,000. Hart's operating losses were $600,000 for Year 6 and $50,000 for the period January 1 through January 15, Year 7. Disregarding income taxes and assuming that the criteria for reporting a discontinued operation are met, what amount of net gain (loss) should be reported in Doe's comparative Year 7 and Year 6 income statements?
Y7 $850,000 Y6 $(600,000)
Earnings-per-share data must be reported on the face of the income statement for
Yes ; No
A 90-day, 15% interest-bearing note receivable is sold to a bank after being held for 30 days. The proceeds are calculated using an 18% interest rate. The note receivable has been Discounted Pledged
Yes; No
Which of the following facts concerning fixed assets should be included in the summary of significant accounting policies? Depreciation Method Composition
Yes; No
According to ASC 606, which of the following must be amortized after their initial capitalization? Incremental Costs of Obtaining a Contract Costs Incurred to Fulfill a Contract
Yes; Yes
Mint Co.'s cash balance in its balance sheet is $1,300,000, of which $300,000 is identified as a compensating balance. In addition, Mint has classified cash of $250,000 that has been restricted for future expansion plans as "other assets." Which of the following should Mint disclose in notes to its financial statements? Compensating Restricted balance cash
Yes; Yes
The standalone selling price of a performance obligation in a contract with a customer may not be directly observable. Alternatives for estimating the standalone selling price include Estimation of the Pricein the Seller's Market Residual Approach
Yes; Yes
Which of the following is used in calculating the gross profit recognized in the fourth and final year of a contract accounted for under the input method based on costs incurred to measure progress toward completion of the contract? Actual Gross Profit Total Costs Previously Recognized
Yes; Yes
Which of the following can be used to estimate the standalone selling price of a performance obligation in a contract with customers when that price is not directly observable? AdjustedMarketAssessment ExpectedCost Plus anAppropriate Margin
Yes; yes
residual value
another name for salvage value is
RSI requirements for modified approach to infrastructure assets
[CEEM] = description of infrastructure condition, estimation of expenses needed to maintain condition (re-evaluated every 3 years)
IFRS VIE model
[BD mAR] sponsoring company consolidates SPE if all: benefited, decision making powers, absorb risks/rewards, and residual interest
Income available to common shareholders (BV per common share)
[BV of equity - NCI - P/S @ liquidation value (par value + premium paid) - dividends in arrears]/common shares outstanding
Reconciliation from fund to G-W statement of net position (balance)
[CAN] - entry to NP = + BOY capital assets - BOY AD - Non-current liabilities [CPAS RIDE] = + capital outlays + premium payments - asset NBV of those disposed of - OFS (bonds BV or leases) + revenue (those unavailable) - interest accruals - depreciation expense [SIT] = + internal service net position +/- elimination of interfund transfers
Proprietary fund SoCF - noncapital financing activities
[noncapital receipts of assets] noncapital debt and interest expense, operating grants/subsidies, property taxes not for capital use, and operating transfers in/out
NFP SoCF operating activities
[normal ops and not restricted resources for LT assets] agency transactions, normal operating activities, resources without DR designated to be used for long lived assets direct or indirect allowed
A change in valuation technique used to measure fair value should be reported as
a change in accounting estimate.
variable interest entity model
a corp, partnership, trust, or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks the sufficient financial resources to support its activities, absorbs the losses or receives expected returns of the large company. - a company like this needs to consolidate with the large one, you are the primary beneficiary, winner and loser. if these conditions are met - company and business entity have an arrangement - business entity is a legal entity - business fails to qualify for an exclusion - interest is more than insignificant - company has an explicit or implicit variable interest in the entity.
permanent difference
a difference that impacts current taxes, not deferred taxes. (payable or refundable)
temporary difference
a difference that impacts deferred taxes (deferred tax asset or deferred tax liability)
Lease Definition
a lease is defined as a contractual agreement between a lessor who conveys the right to use real or personal property. a lessee who agrees to pay consideration for this right over a specifice period of time. - the contract must depend on an identifiable asset in which the lessor does not have a substantive substitution right - contract must convey the right to control the use of the asset over the lease term to the lessee. the lessee will have the right to obtain substantially all of the economic benefits from using the asset and have the right to direct its use.
decreases the investor's basis in the investment
a liquidating dividend...
The conversion of stock is
a non‐cash activity
discontinued operations must represent
a strategic shift or major operating impact
the expected cash flow approach:
accommodates the use of present value techniques when the timing of cash flows is uncertain. the expected cash flow is likely to provide a better estimate of fair value than the minimum, most‐likely, or maximum taken alone
investment trust fund
account for external investment pools
investment trust funds
account for external investment pools. revenue (addition) : contributions, net appreciation, realized gaines & unrealized. Expense (deduction) payments to beneficiaries and administrative exps. assets are valued at FV
Pension (and other employee benefit) Trust Funds
account for resources of defined benefit plans, defined contribution plans, post-employment benefit plans, and other long-term employee benefit plans.
A change in the estimate for credit loss on A/r should be
accounted for in the period of change and any affected future periods
General Fund Revenue Sources
accounts for general activities that are not accounted for by any other fund. - taxes - public safety and regulation - intergovernmental - charges for services - other revenues (investment earnings/misc) Remember the BS only has current items. Assets Liab. Fund balance
custodial fund
accounts for resources in temporary custody of the governmental unit
cost of goods sold / average accounts payable
accounts payable turnover ratio
sales (net) / average accounts receivable (net)
accounts receivable turnover ratio
The title Income Statement should be reserved for use when __________ accounting is used.
accrual basis an alternate title when using the cash basis or the modified cash basis of accounting is : Statement of Cash Receipts and Cash Disbursements.
Exit and disposal accrual
accrue when: (1) obligating event occurs (2) present obligation (3) no discretion to avoid in future
compared to cash basis income, accrual basis income increases when
accrued expenses decreased by the end of the year
Issuance of LT debt between interest dates
accrued interest is added to the price and reimbursed at the next payment date
fair value
acquisition price or consideration given in the acquisition method is valued at
G-W display of interfund activity
activity within a particular column is eliminated activity between columns is reported as "internal balances" on BS or "transfers" on statement of activities activity with fiduciary fund = as if 3rd party
Cash and Cash Equivalents
actual cash, cash equivalents are short term, liquid investments, or withing 3 months of maturity
Components of OCI from pensions
actuarial G/L, difference between expected and actual return on PA, PSC (plan adjustments), and unrecognized net transition obligation loss = DTA (plug IT benefit - OCI) gain = DTL (plug ITE - OCI) these get reclassified into NI when it is reclassified from OCI
number of shares - (number of shares x strike price / average market price)
additional shares outstanding using the treasury stock method =
for valuing an asset to fair value the price should be:
adjusted for transportation costs to transport the asset to its principal market.
Cash paid to suppliers is determined by
adjusting CGS for the effect of the accrual of accounts payable and the increase or decrease in inventory.
ending balance of the allowance for the year
aging of receivables method equals
pension plan
agreement by a company to provide income to its employees after they retire - problem is we are guessing the future amounts IS - pension expense that appears on the sponsor company's IS BS - any related pension accounts that appear on the sponsors BS - use an actuary - written or implied - contributory or noncontributory - contributory = employees, non = non contributory funded or Non funded overfunded and underfunded = over funded has assets that exceed its liab.
fair value
all derivative instruments are reported at...
Income statement
all gain/loss (even unrealized) on equity securities is recorded on the
Use of valuation allowance
allowed by GAAP if > 50% chance of not recognizing DTA Not allowed under IFRS
patent
amortized over the shorter of its estimated life or remaining legal life.
If unearned revenue had decreased, it would have caused
an increase in net income the amount of a decrease in Unearned Revenue must be subtracted from net income to determine the related cash flow
OWNES for leasing classification
any = finance lease (lessee) or sales-type (lessor) O = ownership transfers to lessee at lease term W = written purchase option that lessee is "reasonably certain" to exercise N = NPV of all lease payments and GRV >= 90% of asset FV E = economic life; lease term >= 75% of asset's useful life S = specialized asset; no other alternative use to lessor
Bailey Co. changed the accounting for insurance expense from the cash basis to the accrual basis in the current year. In January of the prior year, Bailey recorded insurance expense of $240,000 for the cash purchase of a four-year insurance policy. How should Bailey report the insurance transaction in the current year's financial statements?
as a $60,000 debit to insurance expense, a $120,000 debit to prepaid asset, and $180,000 credit to retained earnings
How are dividends paid to NCI recorded
as a decrease to the NCI account, but isn't considered "dividends paid"
Gross revenue from tuition and fees
assessed student tuition and fees - canceled classes = gross rev (unrestricted net assets)
transfers of assets to a not for profit that raises or holds contributions for others
asset contribution / liab. / change in interest in net assets assets recorded at FV assets transferred to recipient orgs are not contributions and are accounted for as liab. when any one of the following are met: - resource provider can change the beneficiary - "" "" asset transfer is conditional or otherwise revocable or repayable - "" "" controls the recipient organization and specifies an unaffiliated beneficiary - """" specifies itself or its affiliate as the beneficiary and does not qualify for equity accounting with variance power: NFP can decide who it goes to and is recorded as a contribution. and expensed when distributed. - with or without variance power. similar to above. Beneficiary acctg. = rec. contribution interrelated with the foundation = change in interest in net assets
FV of net assets acquired - BV of net assets acquired
asset adjustment that much be amortized over the life of the asset using the equity method
what items require fair value reporting on the BS
asset impairments, business combinations, goodwill treasury stock is not
cumulative accretion expense + cumulative depreciation expense
asset retirement obligation (ARO) =
sales (net) / average total assets
asset turnover ratio
Fiduciary Funds - General
assets are controlled by the gov assets are not the govs own source rev classified as 4 types of funds C custodial I investment trust P private purpose P Pension O Other E employee benefit
measurement of component held for sale
at the lower of its carrying amount of fair value less costs to sell. can record impairment loss if NRV is less than book amount.
fair value
available for sale debt securities are measured at their
total depreciable cost / total annual depreciation
average composite life using the composite depreciation method =
Leverage=
average total assets/average shareholders equity
Components of RSI
before FS = MD&A = brief, objective, and easily readable analysis of activities (significant variances will be reported here) after FS = multi-year pension information (10 years if available), infrastructure data for modified approach and budgetary disclosures
Components of plan assets
beginning FV + contributions - benefits paid + actual return (PLUG) = ending balance
Components of PBO
beginning balance + PSC adjustments + service cost - interest cost - benefits paid + actuarial gain (loss) = ending balance
Escrow liability account balances
beginning balance + payments to - payments from + interest earned (net of % fee) = ending balance
T-account for allowance for doubtful accounts
beginning balance + recoveries + CY BDE (plug) - write-offs = ending balance (either % of ending AR OR aging of AR)
current vs noncurrent liab
bonds or notes due within 1 yr are shown as noncurrent unless the issuer has the intent to refinance. Separate disclosure of not refinancing should occur.
existing partners - when the new partner pays more than NBV new partner- when the new partner pays less than NBV
bonuses will be credited to the following partners using the bonus method:
DTA
book income now < tax income now; book asset < tax asset DTA/L can be netted in GAAP and IFRS (non-current portion)
DTL
book income now > tax income now; book asset > tax asset DTA/L can be netted in GAAP and IFRS (non-current portion)
common shareholder's equity / common shares outstanding
book value per common share =
Sale-leaseback when there is a failed sale/borrowing
borrowing = failed sale, control is NOT transferred (OWNES is met) = seller has financing liability and buyer has financing receivable (1) Inception = cash and financing liability (2) @ pmt dates = int expense and decrease financing liability; continue to depreciate asset; lease payments are treated as normal loan payments
Under IFRS for SMEs, which of the following methods, if any, can be used by an investor to account for an investment in another entity (an associate) over which the investor has significant influence? Cost Method Equity Method
both
Under IFRS, the statement of cash flows may be presented on the Direct Basis or Indirect Basis
both
Assume the current ratio exceeds 1. What is the effect on the current ratio of paying an account payable?
both CA (cash) and CL (accts pay) decrease by the same amount. The ratio increases because the denominator falls by a greater percentage.
Which of the following items would be recognized in financial statements prepared using an income tax basis of accounting relating to permanent differences? Nontaxable Income Nondeductible Expenses
both nontaxable income & nondeductible expenses
Trading Securities (TS)
bought and held primarily to be sold in the near term and are reported at fair value (with changes in fair value reported in Net Income on the IS) - current asset, cash flow from operations. - Cash flow: operating
Components of OSI
budget variances and individual statements of non-major funds
Investments in Debt Securities
buyer/bonds in other entities. no voting, thus no significant influence. (you are the lender) include: coprorate bonds, redeemable preferred stock, govt securities, convertible debt, commercial paper 3 ways - trading security - available for sale - held to maturity
On February 12, 2005, VIP Publishing, Inc. purchased the copyright to a book for $15,000 and agreed to pay royalties equal to 10% of book sales, with a guaranteed minimum royalty of $60,000. VIP had book sales of $800,000 in 2005. In its 2005 Income Statement, what amount should VIP report as royalty expense? $60,000 $75,000 $80,000 $95,000
c) 80,000 (10%* 800,000) DO NOT INCLUDE COPYRIGHT COSTS!!
When are checks recorded as disbursement for cash reconciliation purposes?
checks not mailed yet are not considered disbursements until mailed because the company still has control over the money; disbursement once it is in the mail
R rec. rev. as satisfied
can be point in time ( grocery store purchase) or overtime (input method: or hours put into an audit) Output method: wallstreet journal. rec. when received) rec will occur when customer obtains control
statement of cash flow for not for profit
can use the direct or indirect.
Contracts that transfer ownership for governmental lessee (governmental fund)
capital outlay expenditure and OFS (payment of debt is consistent with other debt payments = expenditure for principal and interest)
How do bond effect SoCF:
cash interest payment = CFO principal payment = CFF discount amortization is added back to NI in the indirect method
Cash Flows from Operating Activities outflows=
cash paid to suppliers, employees, interest, income tax
cash + marketable securities / current liabilities
cash ratio
Cash Flows from Operating Activities inflows=
cash received from: customers, dividends ( from investment), interest
cash flow from financing
cash transactions related to restricted contributions is reported on the statement of cash flows as
net change in fund balance (total government funds) + capital outlay + principal payments on non-current debt - asset disposals - sources (other financing sources) + revenue (unavailable) - Interest expense (accrued) - Depreciation expense + Internal service fund net revenue
change in net position of governmental activities =
financing
change in own debt (interest bearing) and own equity
Derived non-exchange tax revenues
comes as a result of economic activity (sales taxes); receivable and revenue with deferred inflow for measurable but not available
component is held for sale when..
commits to a plan to sell the component available for immediate sale active program to locate a buyer sale is probable and expected within 1 year
total shareholder's equity - preferred stock outstanding - cumulative preferred dividends in arrears
common shareholder's equity =
Book value per common share
common stockholder's equity/common shares outstanding
fair value
compensatory stock options and stock purchase plans are valued at
Faithful Representation includes:
completeness, neutrality, free from error
What type of depreciation is required under IFRS?
component depreciation
pension adjustments unrealized gain/loss from afs debt securities foreign currency translation items instrument-specific credit risk effective portion of cash flow hedges revaluation surpluses (gains)
components of other comprehensive income
an unrealized loss is reported on
comprehensive income
Treatment for factoring AR w/ recourse
considered sale when: seller's obligation for uncollectible is estimated, surrender control to buyer, and may be required to replace receivables if sale, treat the same as factoring w/o recourse; if not sale (any of the requirements are not met) = treated as collateral and only disclose
cash flow from operating
contributions of revenue without donor restrictions that is board-designated is reported on the statement of cash flows as
consolidation concepts
control over 50% do not consolidate when - subsidiary is in legal reoganization - bankruptcy of sub.
what is disclosed as supplemental info to the statement of cash flows?
conversion of debt to equity
foreign currency translation
conversion of financial statements of a foreign entity into financial statements expressed in a domestic currency
cash paid for operating expenses + ending accrued liability - beginning accrued liability - ending prepaid expenses + beginning prepaid expenses = accrual basis operating expenses
converting cash paid for operating expenses to accrual basis operating expenses
depletion base
cost - residual value
Equipment
cost includes all expenditures related directly to the acquisition or construction of the equipment. - invoice price less cash discounts ass freight in and insurance add installation add sales and federal excise taxes
Plant cost
cost of building plus cost of excavation (digging foundation) architect fees possible addition alterations and improvements all repair charges neglected by the previous owner (Not ordinary)
According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:
cost- benefit
Capitalizaliable intangibles
costs associated with internally developed intangibles that are specifically identifiable can be capitalized: - legal fees, registration or consulting fees, design costs, other direct costs to secure asset - straight line method should be used.
incremental costs of obtaining a contract
costs that would not have been incurred if the contract had not been obtained, are recognized as an asset (capitalized and amortized) if the entity expects that it will recover these costs. Assets: lawyers review of contract, commissions Expenses: shipping costs, sales presentations, meals
What is included in the cost of land
costs up to acquisition = purchase, broker's/legal/title fees, swamp drainage, clearing, development, previous owner obligations (mortgage), demolition, less proceeds from existing resources Improvement (fences, sidewalks, drainage) = depreciated over useful life
spot exchange rate=
current
ending inventory / cost of goods sold / 365
days in inventory
ending accounts payable / cost of goods sold / 365
days of payables outstanding
ending accounts receivable (net) / sales (net) / 365
days sales in accounts receivable
Contracts that transfer ownership for governmental lessor (proprietary/fiduciary fund)
de-recognize asset and record receivable/revenue like a sales-type lease
Creditor entries in troubled debt restructuring
debt restructuring is considered an impaired loan; recognized using BDE (CV loan - FV of assets/equity received or PV of future cash flows using historical rate)
If the WCR exceeds 1.00: Equal increases in current assets and liabilities
decrease the WCR. WCR = CA 20,000 / CL 10,000 = 2 WCR = (CA 20,000 + 10,000) / (CL 10,000 + 10,000) = 30,000 / 20,000 = 1.5
what effect does pay AP have on the Current ratio at .90 (less than 1)
decreases because numerator is smaller than the denominator before transaction and denominator increases
A decrease in current assets (alone)
decreases the WCR
An increase in current liabilities (alone)
decreases the WCR.
Equal decreases in current assets and liabilities
decreases the WCR. WCR = 20,000 / 30,000 = .66 WCR = 10,000 / 20,000 = .50
what effect does purchasing inventory have on current ratio of 1.70 (larger than 1)
decreases: Inv & AP increase by the same amount BUT CA increase by a smaller % bc the numerator was larger
Hedge accounting with governments
deferred inflow (gain) vs deferred outflow (loss) if the hedges are effective; similar to use of OCI
IFRS defined benefit plan
defined benefit obligation (DBO); PSC is expensed immediately; actuarial G/L in OCI are never reclassified; entire funded or unfunded portion is non-current
Warranties
depends if the customer has the option to purchase the warranty separately. if separately it will be treated as a distinct service. allocate to the performance obligation. if not separate then there is no performance obligation. - if the law requires the warranty, NOT a performance obligation - longer the coverage period, higher likelyhood it is a performance obligation - if an entity must perform specific tasks to provide assurance, likely NOT a performance obligation
cost to purchase + developmental costs + estimated restoration costs - residual value
depletion base =
The summary of significant accounting policies requires that the methods of __________ used by a firm be disclosed.
depreciation
Examples of operating expenses (not R&D)
design changes, market research, executive salaries, QC testing, post-production costs, and commissions
Net income - preferred dividends + interest on dilutive securities / weighted average shares outstanding
dilutive eps =
Dilutive vs Antidilutive
dilutive only if average price > strike (exercise) price "in the money"
Acquisition costs and treatment (direct costs, stock registration, indirect, or bond issuance costs)
direct out-of-pocket = expensed stock registration/issuance costs = decrease APIC indirect costs = expensed bond issuance costs (discount/premium +/- bond issuance costs)
which of the following divisions completes the investigation and takes appropriate actions when there is a violation of a securities law (except the Public Utility Holding Company Act).
division of enforcement
Functional expense disclosures for NFP
disclosure in statement of activities Functional = categorize costs by major classes of program (purpose and mission) and support (activities such as management/general, fundraising, and membership development) Functional = displayed horizontally Natural classification = vertical (G/L account names)
net of tax
discontinued operations are reported on the income statement:
Investments within NFP
displayed at FV; increase/decrease in FV (with associated increase or decrease in NA with or without donor restrictions) and income (recognized in period earned)
Split-interest agreements within NFP
displayed separately on FS measured at FV or PV at acquisition and classified as donor restricted dr. assets held in trust (total amount received) cr. liability to beneficiary (amount to give) cr. contribution revenue with DR (amount expected to keep)
net income
dividend income from an equity security is recognized in
cash dividends / net income
dividend payout ratio
Which of the following divisions is responsible for overseeing compliance with the securities acts?
division of corporate finance
Activity
do not confuse activity when closing the budget. for the GRASPP funds Rev = measurable and available (&collected within 60 days of year end) Expenditures = all spending Assets = expenditured Debts = other financing source (not LTD) Matching principle is not used Non exchange Rev: sig source of income. where the gov collects taxes and hands it out to gov entities. Derived tax revenues = sales and income Imposed non exchange rev: fines and property tax for expenditures its: Expenditure Voucher payable (when VP is recorded not when cash goes out)
Donated art (NFP and governmental policy)
don't capitalize if ALL met: (1) held for public viewing (2) cared for by organization (3) proceeds if sold are used to purchase other works of art also don't capitalize if major uncertainties about FV exist and have no alternative use; no asset OR revenue is recognized
fair value
donated fixed assets are recorded at under US GAAP
Underwater endowment in NFP
donor restricted endowment fund where FV at reporting date < original gift or amount required to be maintained in the fund report accumulated losses with endowment fund in NA w/ DR
What is excluded from NFP SoCF
donor-restricted cash contributions / equivalents are excluded
Creation of encumbrance and what to do with leftover balance
dr. encumbrance and cr. budgetary control when purchase order is created; reversed when invoice is paid lapse = committed or assigned FB don't lapse = disclose remaining appropriations = appropriations - expenditures - balance in encumbrance (purchase orders - orders received)
Creation of budget
dr. estimated revenues cr. appropriations plug budgetary control
Payroll deductions
dr. salaries and wages expense (gross payroll) and payroll tax expense (employer's share of FICA and unemployment); cr. FICA taxes payable (employer and employee amount), unemployment taxes payable (employer amount), withholding taxes payable (employee amount), and cash (net paycheck)
current liabilities
due in the upcoming year or in the operating cycle of the business, whichever is longer, and that will be met through the transfer of a current asset or the creation of another current liability (must meet both criteria) Accounts payable, wages payable, income tax payable, unearned revenues, and warranty liability ....current portion of long term debt
foreign currency remeasure
dysfunctional currency used by sub - is the restatement of foreign financial statements from the foreign currency to the entities functional currency 1st convert BS fixed amounts = current rate BS fluctuate amounts = historical rate 2nd convert IS non balance sheet related items = WA rate IS BS related items = historical rate (depreciation, PPE, COGS, inventory, bonds) plug goes to the IS
income available to common shareholders / weighted average common shares outstanding
earnings per share
interim financial reporting, should use what tax rate for income tax provision
effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter if 2nd quarter tax rate increases than report the total tax combined less what was already reported
Intercompany bond retirement transactions
eliminate bond interest payable/receivable eliminate BP for BV w/ related discount or premium eliminate investment in bonds account (for FV of purchase) plug G/L and amortize over the life of the bond
Intercompany fixed asset transactions
eliminate inter-company gain, write up asset / AD accounts; decrease excess depreciation (what was booked vs what should've been booked within the consolidated entity)
activity
emphasizes the flow of current financial resources and has an annual budgetary focus
township budgeted/ appropriated 100,000 for the purchase of two sanitation trucks at the beginning of the year. a purchase order is issued to purchase the two trucks at an estimated cost of 45,000 each. then invoice comes in at 44K
encumbrances 90K budgetary control 90K budgetary control 45K encumbrances 45K Expenditures 44K Vouchers payable 44K closing the other 45K encumbrance at YE Budgetary control 45K encumbrance 45K Unassigned fund balance 45K Fund Balance Committed 45K 2nd truck comes in in 2nd year Expenditure 45K VP 45K
Financial statements only provide direct information about
enterprise performance
Fundamental assumptions and principles of financial reporting
entity assumption going concern assumption monetary unit assumption periodicity assumption measurement principle revenue recognition principle expense recognition principle full disclosure principle
VIE model
entity will consolidate when it has: (1) variable interest [ALE VI] (all = arrangement, legal entity, fails exclusion for NFP, pension plans, investment org, or government, and explicit or implicit variable interest) (2) is a VIE (insufficient equity at risk, inability to make decisions, no losses/rewards, OR disproportionate voting rights to economic interest) (3) primary beneficiary (direct activities AND absorbs > 50% losses/receives returns)
All Generally Accepted Accounting Principles are...
equally authoritative... no hierarchy
net income + other comprehensive income
equation for comprehensive income
Examples of R&D expense
equipment, materials, labor, OHD, design, testing, engineering, modification, and research salaries
total assets / total equity
equity multiplier
fair value through net income
equity securities are typically carried at
Accumulated other comprehensive income should be reported on the balance sheet as a component of
equity.. but seperate, not a part of retained earnings or additional PIC
Which of the following methods of inventory valuation is allowable at interim dates but not at year end?
estimated gross profit
when do revisions happen for SMEs
every 3 years at most part
Value of internally developed intangible assets under GAAP
expensed when incurred (R&D not capitalized); exception = fixed asset that has alternative use, legal fees (successful) for defending or filing for patent, and R/D costs undertaken for others
deferred tax liability
expenses or losses deducted for taxable income, before they are deducted from accounting income
deferred tax asset
expenses or losses deducted from taxable income, after they have been deducted from accounting income
Cash‐basis net income reflects
expenses paid
accrual‐basis net income reflects
expenses recognized (accrued).
Return on Equity (ROE) -
explicitly includes the amount and cost of financing.
complete, neutral, free from error
faithful representation
accrued
how are loss contingencies recorded in the financial statements if they are probable and can be reasonably estimated
land improvements
fences water systems sidewalks paving landscaping lighting have a useful life and are depreciated
60 days- large accelerated 75 days- accelerated 90 days- all other registrants
filing deadline for the 10-K (filed annually)
what is an example of an unobservable input
financial forecast
Imposed non-exchange revenues
fines and property taxes; enforceable claim by government; accrue when billed / levied
involuntary conversions
fire loss, theft, or condemnation, entire gain or loss is recognized.
What does fund structure help to achieve in GASB 34?
fiscal accountability
historical cost
fixed assets are recorded at under US GAAP
cash flow from financing
for finance leases, the principal payments for the lease are classified as what on the cash flow statement
cash flow from investing
for operating leases, any payments needed to prepare the asset for its intended use are classified as what on the cash flow statement
cash flow from operations
for operating leases, lease payments are classified as what on the cash flow statement
external reporting
fund based and gov wide financial statement (Consolidated). fund financial statements are displayed to report additional and detailed info about primary gov. used by 3 groups: citizens, legislative/oversight groups, and investors/creditors
the income statement (in earnings)
gain or losses on fair value hedges should be reported in
Income Statement
gains/losses of debt trading securities are recorded on the
other comprehensive income
gains/losses on effective portion of cash flow hedges are reported in...
the income statement
gains/losses on the ineffective portion on cash flow hedges are reported in...
Par value
generally preferred stock is issued with par value, but common stock may be issued with or without it.
Goodwill in consolidation under full goodwill method
goodwill = FV of sub - FV of NA
Goodwill in consolidation under partial goodwill method
goodwill = purchase price - FV of NA acquired
Goodwill is allocated to the old partners
goodwill method for creation of a new partnership:
acquisition cost - FV of sub's net assets acquired
goodwill using the partial goodwill method =
required disclosures of all endowments
governing boards interpretation of the requirements policies for the appropriation of endowment assets investment policies composition of the not for profit endowment by net asset class reconciliation of the beginning and ending balance of the not for profits endowments by net asset class
Government mandated non-exchange transactions
grants given from another government; all eligibility requirements must be met before revenue is recognized
What is included in income from continued operations (net income)
gross margin - SG&A and depreciation expense = income (loss) from operations + other revenues and gains - other expenses and losses = income before unusual items and income tax +/- unusual and/or infrequent items = income before income tax (EBT) - ITE = income from continuing operations
Universities and colleges NFP gross tuition
gross presentation = tuition - canceled classes gross tuition revenue = money received - cancelled (refunds) + scholarships/waivers (stated separately and can either by allowances or expenses)
disclose
how are loss contingencies recorded in the financial statements if they are reasonably possible
ignore
how are loss contingencies recorded in the financial statements if they are remote
at cost
how are purchased intangible assets recorded
FV hedge
hedge change in FV of recorded asset/liability or firm commitment; change in FV of derivative and hedged item = NI
CF hedge
hedge variability in cash flows (or a forecasted transaction) effective portion (80-125%) = OCI; un-parked at realization of hedged item ineffective portion = NI
what is the filing requirements for a large accelerated filer?
held by nonaffiliates of $700 million or more; 10-k: 60 days after fiscal year-end; 10-Q: 40 days after quarter-end
what is the filing requirements for an Accelerated filer?
held by nonaffiliates that is $75 million or more but less than $700 million; 10-k: 75 days after fiscal year end; 10-q: 40 days after quarter end
amortized cost
held to maturity debt securities are measured at
cash flow from investing
held to maturity debt securities are recorded on the cash flow statement as
five different attributes are used to measure assets and liabilities in present practice:
historical cost, current (replacement) cost, current market value, net realizable value, and present value of future cash flows
fair value
how are debt trading securities recorded
historical cost - A/D - Impairment
how are fixed assets reported using the cost model under IFRS
not recognized, disclose only
how are gain contingencies recorded in the financial statements
expensed when incurred
how are internally developed intangible assets recognized
Repurchase agreement where there is a right to repurchase at the customer's option (put)
if RP < SP = lease (if buyer will get more money from the seller buying it back - EMV < RP) or sale with right of return if RP >= SP = financing agreement (if buyer will get more money from the seller buying it back - EMV < RP) or sale with right of return
Repurchase agreement where there is an obligation (future) or right (call) to repurchase
if RP < SP = lease; favorable conditions if RP >= SP = loan/financing liability with recognition of interest expense and revenue once option lapses
commericial substance nonmonetary transaction
if a nonmonetary exchange has commercial substance, the transaction is accounted for using the fair value of the asset surrendered or received. whichever is more evident. gain is recognized as the difference between the book value of the asset given up and the fv of asset received
convertible bonds
if converted = add to the numerator ( interest exp saved net of tax) add to the denominator the number of CS associated with the assumed conversion.
conditions to meet for discontinued operations
if it represents a strategic shift that has or will have a major effect on an entity's operations and financial results - disposal of a major geographical area - major equity method investment - major line of business
foreign currency translation
if sub has functional currency. - is the restatement of financial statements denominated in the functional currency to the reporting currency using appropriate rates of exchange 1st convert IS all IS items = WA rate transfer NI to RE 2nd convert Assets, liabs = current rate Common stock = historical rate RE = roll forward. plug goes to other comprehensive income (BS)
LIFO conformity rule
if use LIFO for tax, must use it for book
increases
if you buy a call on an option contract, you hope the price...
short
if you buy a cash flow hedge in the _____ position, then you offset the risk that the asset you sell in the future will decrease in value.
long
if you buy a cash flow hedge in the _____ position, then you offset the risk that the cost of the asset will increase in value.
decreases
if you buy a put on an options contract, you hope the price...
Loss is remote
ignore Disclose below: D ebts of other guaranteed O bligations of commercial banks under standby letters of credit G uarantee to repurchase receivables
CECL model
impairment for debt securities (recorded using allowance for expected credit losses) HTM: loss = ATC - PV of future cash flows AFS: max loss = ATC - FV; credit loss = ATC - PV; excess loss to OCI
What are the exceptions to the retrospective approach of a change in accounting principle?
impractical estimate (such as FIFO to LIFO) or a change in depreciation method = treated protectively
If a government IS obligated/liable for a special assessment, how is it accounted for
in a debt service fund
increases
in a futures contract, if you have a long position in an asset, then you hope the price...
decreases
in a futures contract, if you have a short position in an asset, then you hope the price...
long
in a futures contract, if you have the _____ position then you agree to buy a particular item
short
in a futures contract, if you have the _____ position, then you agree to sell a particular item
10% test- governmental funds are compared with the total of all governmental funds, and enterprise funds are compared with the total of all enterprise funds 5% test- all funds are individual compared with the total of ALL governmental funds and enterprise funds
in order for a fund to be considered major, what 2 tests must be met
Current assets
in the form of cash/ consumed within one year Cash, accounts receivable, short-term investments, inventory, and prepaid assets are current assets.
royalties should be recorded as an expense
in the period they are incurred
exit activity
includes but is not limited to restructurings which are programs that are planned and controlled by management, and materially changes either 1. The scope of a business undertaken by the company, or 2. The manner in which that business is conducted
Price of asset purchased
includes cost, shipping, installation, adjustments that need to be made to get it in working condition, and sales tax NOT personnel costs for training
diluted EPS
income available to the common stock shareholder + interest on dilutive securities) / weighted average number of CS (assuming all dilutive securities are converted to CS)
Under U.S. GAAP, a gain that is both unusual and infrequent should be reported as which of the following?
income from continuing operations
to calculate tax rate if not given=
income tax expense/income before tax
If the WCR is less than 1.00: equal increases in current assets and liabilities
increase the WCR. WCR = CA 10,000 / CA 20,000 = .50 WCR = (CA 10,000 + 10,000) / (CA 20,000 + 10,000) = 20,000 / 30,000 = .66
If the WCR exceeds 1.00: Equal decreases in current assets and liabilities
increase the WCR. WCR = CA 30,000 / CL 20,000 = 1.5 WCR = CA 20,000 / CL 10,000 = 2
how does does purchasing treasury stock affect earning per share=
increases EPS
A decrease in current liabilities (alone)
increases the WCR.
An increase in current assets (alone)
increases the WCR.
Part 2 of Form S-1 includes
information about the cost of issuing and distributing the security, more detailed information about the directors and officers and additional financial statement schedules.
Treatment for initial franchise fees vs continuing fees (royalties)
initial = intangible asset valued at PV of amount paid and amortized over expected life of franchise continuing franchise fees (royalties) - expensed as incurred
beginning PBO x discount rate
interest cost to find net periodic pension cost =
GP method (used to prepare interim statement COGS)
interim sales * (1-GP%) = interim COGS
freight in=
inventoriable cost
determining fair value does not apply to:
inventory for lower of cost or market
cost of goods sold / average inventory
inventory turnover ratio
Retained earnings are thought to be:
less permanent due to the fact that dividends are a distribution of earnings last in equity section on BS
financial accounting provides info for ___
investors and creditors
intraperiod tax allocation
involves apportioning the total tax provision for financial acctg purposes in a period between the income or loss from I income from continuing ops. D discontinued ops. A accounting principle change P pension funded status change U unrealized G/L on avail. for sale debt security F foreign translation adjustment I instrucment specific credit risk E effective portion of cash flow hedge R revaluation surplus
Underwater Endowments
is a donor restricted endowment fund for which the FV of the fund at the reporting date is less than either the original gift amount or the amount requried to be maintained by the donor. must disclose how hard it will be for their intended beneficiaries to F fair value of the underwater endowment E endowments gifts original amount D deficiency
not for profit orgs are considered financially interrelated organizations in the event that one of the organizations
is both able to influence the operating and financial decisions of the other and has an economic interest in the net assets of the other
net of tax treatment
is not allowed
accumuated OCI
is reported in the SE section of balance sheet
Statement of Cash Flows
is required part of the full set of FS for all businesses. Operating Investing Financing
depletion
is the allocation of the cost of wasting natural resources such as oil, gas, timber, and minerals to the production process. purchase cost: purchase + prepare the land for removal of resources, drilling costs, tunnels, shafts, or prepare the asset for harvest, estimated restoration costs.
common stock
is the basic ownership interest in a cop. last in line tho. they have the right to vote. (preemptive rights is the right to purchase future sales to keep the same % of ownership)
functional currency
is the currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency.
The FASB Accounting Standards Codification
is the single authoritative source of US GAAP
If the lessor controls the exercise of extension or termination of lease, how does this effect lease term
it is included in lease term
DR: Interest in recipient net assets CR: Change in interest in recipient net assets
journal entry for beneficiary recording assets received when entity is financially interrelated and has an interest in the net assets of the recipient
DR: Receivable CR: Contribution
journal entry for beneficiary recording assets received when entity is not financially interrelated and does not have a beneficial interest
DR: Beneficial Interest CR: Contribution
journal entry for beneficiary recording assets received when entity is not financially interrelated but has a beneficial interest
DR: Asset CR: Contribution
journal entry for recipient recording assets received when entity is financially interrelated and with or without variance power
DR: asset CR: contribution
journal entry for recipient recording assets received when entity is not financial interrelated and with variance power
DR: asset Cr: refundable advance liability
journal entry for recipient recording assets received when entity is not financial interrelated and without variance power
Lessor accounting for operating lease
keep asset on the books and recognize depreciation income recognized SL and indirect costs are amortized on SL basis
capital stock
legal capital is the amount of capital that must be retained by the corp for the protection of creditors. the par or stated value of both preferred and common stock is legal capital
Mandatorily redeemable PS
liability on BS
Notes payable
long term = record at PV PMT * # of pmts = Gross NP LESS - PV = Discount (contra account, def int) interest exp must be recorded whether cash pmt is made or not
present value
long-term liabilities are recorded at their...
market floor, market ceiling, or replacement cost
lower of cost or market uses the middle value between:
International accounting standards are _______ _______ in the FASB Accounting Standards Codification.
not included
net realizable value
market ceiling in lower of cost or market
Calculation of LCM
market floor (NRV - normal profit margin) market ceiling (NRV) if replacement cost is in between the two, that is "market"
net realizable value - profit
market floor in lower of cost or market =
Principal market in FV measurement
market with the greatest volume or level of activity = use if known
Construction period interest
max interest capitalized = MAX is ALL interest incurred during the period (even not related to construction) (1) weighted average of accumulated construction expenditures (if evenly over the year, divide by 2 for weighted average) (2) multiply by interest rate for construction loan, excess expenditures use the weighted average for all other borrowings (3) capitalizable interest <= actual interest incurred during period - capitalized interest cannot be reduced by income on unexpended loan during year
the most advantageous market is the market that
maximizes the price received for the asset.
deferred inflow of resources
measurable but not collected until more than 60 days after year end. have a negative effect on net position and are reported following liabilities but before equity.
Statement of significant accounting policies
methods, policies, and criteria; [DECAF RIC] Depreciation methods Estimates (significant ones) Consolidation basis Amortization methods Fiscal year Revenue recognition Inventory pricing Cash equivalents definition
PV of ordinary annuity
more than 1 payment = annuity payment * PV of ordinary annuity of $1 for appropriate n and r (bonds and leases)
transfers between funds
move $ between checkbooks Dr. Other financing uses
total cost of inventory available after each purchase / total units available after each purchase
moving average method =
annuities
multiple cash flows (bond interest payments and lease rental payments) ordinary annuity = end of each period annuity due = beg each period PV of $1 = single CF PV = FV / (1+r)^n n = periods r = interest rate (both have to be annual or quarterly) FV of $1 = Single CF FV = PV * (1+R)^n or * FV factor if given 1 / FV factor = PV factor or vice versa
gross margin=
net income- cost of goods sold
ROA=
net income/average total assets profit margin*total asset turnover
profit margin=
net income/sales
indirect required disclosures
net interest payments income taxes
prior period adjustment is to be shown net of tax as an adjustment to the beginning balance of retained earnings.
net of tax as an adjustment to the beginning balance of "retained earnings."
Components of other comprehensive income can be shown either _____________
net of tax-related effects or before tax-related effects with the aggregate income tax effects shown as one amount.
total governmental fund balance + capital assets - accumulated depreciation - non-current liabilities + reverse deferred inflows - accrued payable + internal service fund net position
net position from governmental activities =
Long-term trade accounts and notes receivable are recorded at the _________________
net present value of future cash flows, calculated using the effective interest rate at the time of the contract execution.
net selling price - costs to complete
net realizable value =
Leases other than short term and contracts that transfer ownership for governmental lessor (proprietary/fiduciary fund)
no de-recognition of asset; lessor recognizes lease receivable (for PV of lease payments and is decreased like normal sales-type lease) and deferred inflow of resources (recognized as lease revenue on SL basis over life of lease); initial direct costs are recorded as expense
What effect would the sale of a company's trading securities at their carrying amounts for cash have on the Current ratio & Quick ratio
no effect
Exact method for new contribution to partnership
no goodwill or bonus recognized; new capital account = FV of contribution total new equity after contribution = old equity / (1-x%) x% being the percentage that the new owner wants to receive
governmental funds
no profit motive modified accrual basis of acctg current financial resources measurement focus no FA and no Long term debt (FA are expensed as capital outlay) M odified A accrual acctg C current financial resources meansurement foc G general fund R special rev fund s debt service fund p capital projects p permenant fund BS only has current CA + deferred outflows CL + Deferred inflows + fund balance = total CL, DI, and fund balance Statement of Rev, expenditures, and changes in fund balance Rev - expenditures + other financing sources - uses = net change in fund balance
Going concern
no substantial doubt - no disclosure substantial doubt alleviated - FS prepared using going concern basis and disclosures substantial doubt NOT alleviated - FS prepared using going concern basis of accounting, notes must say there is a substantial doubt, and disclose IFRS requires disclosures when management is aware of material uncertainties that may give rise to substantial doubt about an entity's ability to continue as a going concern (at least 1 year) and IFRS requires assessment at least one year from the BS date, not issuance date
Pass-through contributions for NFP recipient accounting when NOT financially interrelated
no variance power = asset and refundable advance liability variance power = asset and contribution revenue
Pass-through contributions for NFP beneficiary accounting when NOT financially interrelated
no variance power = receivable and contribution revenue variance power = no entry (not recorded until received)
interest expense=
non operating expense
Gifts-in-kind for NFP
non-cash contributions = support and offsetting expense - such as supplies donated
employee stock option
noncompensatory - No JE until employee buys stock. used by entities to raise capital or diversify ownership. No compensation expense. plan in noncompensatory if it meets all - substantially all full time employees meeting limited employee qualifications may participate. - stock is offered to eligible employees equally - any discount from the market price is no greater than would be a reasonable offer of stock. - the time permitted to exercise the rights is limited to a reasonable period. (IFRS does not use) compensatory - valued at FV of the options issued. option price = the price at which the underlying stock can be purchased pursuant to the option contract. vesting period = the period over which the employee has to perform services in order to earn the right to exercise the options. (service period)
fv of sub at acquisition date / noncontrolling interest %
noncontrolling interest at the acquisition date =
Proprietary fund SoCF - operating activities
normal operations (charges from customers and pmts to suppliers/employees) and internal activities (reimbursement payments between funds or payments in lieu of taxes)
Completed contract method
not allowed under IFRS expenditures: dr. CIP and cr. AP billings: dr. AR and cr. progress billings losses: recognized at 100% in year of discovery revenue and GP recognized at completion (dr. progress billings, cr. revenue; dr. costs for LT construction, cr. CIP)
CAFR (Comprehensive Annual Financial Report)
not gaap requried
Donated services for NFP
not recognized unless: (1) create/enhance non-financial asset OR (2) SOME (specialized skills, otherwise would need to purchase, and measured easily)
Mend Co. purchased a three‐month U.S. Treasury bill. Mend's policy is to treat all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents . How should this purchase be reported in Mend's Statement of Cash Flows? As an outflow from operating activities. As an outflow from investing activities. As an outflow from financing activities. Not reported.
not reported This is a cash equivalent, not a purchase or sale of items such as equipment.
Mend Co. purchased a three‐month U.S. Treasury bill. Mend's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Mend's statement of cash flows? As an outflow from operating activities As an outflow from investing activities. As an outflow from financing activities Not reported.
not reported The statement of cash flows is required to be prepared based on inflows and outflows of cash and cash equivalents during the period. The purchase of a cash equivalent using cash is not an outflow of cash and cash equivalents; it is merely a change in the composition of cash and cash equivalents. Cash has decreased and cash equivalents have increased, but total cash and cash equivalents is unchanged. Therefore this purchase is not reported in the statement of cash flows.
Separate EPS amounts are
not required to be presented for either other comprehensive income or comprehensive income.
Which of the following are not measured at the expected cash to be paid or received? Notes payable. Equipment in use. Unrecorded patent. Equipment held for sale.
notes payable
salaries and wages is an example of what classification
object
discount
on bonds payable, if the market rate is higher than the stated rate it results in a
non-current
on the balance sheet, all deferred tax assets/liabilities are reported as...
Dividend received deduction and temporary difference calculation
ownership < 20% = 50% exclusion ownership = 20-80% = 65% exclusion ownership > 80% = 100% exclusion temporary difference arises from the difference = [sub NI x p% - sub div x p%] * (1-dividend deduction exclusion %); temporary difference * TR = results in DTL or DTA
cash flow from operations / current liabilities
operating cash flow ratio
Return on Assets (ROA) - measures
operating performance independent of financing
What does government wide help to achieve in GASB 34?
operational accountability; full accrual and economic resource focus
expensed
ordinary repairs on equipment are...
Component Unit
organization for which the elected officials of the primary government are financially accountable. or by nature and signifcance of relationship with the primary gov cannot be excluded from the primary govs FS. Blended or discrete presentation
Cumulative currency‐translation adjustments is a component of _________
other comprehensive income?
deferred outflow vs inflow
outflow = consumption of net assets applicable to future; added to assets inflow = acquisition of net assets applicable to future; added to liabilities
company can not determine beginning supplies inventory results in
overstated net income no effect on Owners Equity supplies expense= total purchases less ending inventory amounts are determinable and thus owners' equity at the end of 2001 can be determined.
Sum of years Digits Depreciation
philosphy that the asset is more useful in beginning years 4 year asset = 1+2+3+4+5= 15 as the denominator 1st year = 5/15 2nd year 4/15 * by cost - salvage value 3rd year 3/15 etc. etc.
Relevance includes:
predictive value, confirmatory value, materiality
Government Accountability Office (GAO)
prescribes auditing standards (single audit act)
price per share / basic earnings per share
price earnings ratio
principal vs. agent rev rec theory
principal: the entity controls the good or service before it is transferred to the customer. in this case rev rec is equal to the gross consideration an entity expects to receive Agent: entity arranges for the other party to provide the good or service to the customer. rev rec is equal to the fee or commission for performing the agent function
is IFRS more rule based or principle based?
principle based
long-term liabilities
probably sacrifices of econmic benefits associated with present oblications that are not payable within the current operating cycle or reporting year, whichever is greater. - Need to record at PV
net income / sales (net)
profit margin
debt covenant
promises - creditors use debt covenants in lending agreements to protect their interest by limiting or prohibiting the actions of debtors that might negatively affect the positions of the creditors - goal = maintain debtors credit rating Violation of DC = usually doesnt end in a termination and make the debtor pay back immediately, usually results in increase in interest rate.
Changes in accounting principles
prospective: change in future years. (change in estimate, change in depreciation method) retrospective: prior years, (change in error, change in entity if a comparable statement, change in inventory method: LIFO to FIFO.) - changing from NON GAAP to GAAP is an error, must be from Gaap to Gaap. - can only change if required to by GAAP, or alternative principle is preferable and more fairly presents the information) can not switch to sooth IS.
How to treat a change in accounting estimate
prospectively; ex) change in UL, SV, or litigation
Earnings per share disclosures are required for
public
Earnings per Share
public company has to show it on the face of IS. and if it is complex then have to show basic and diluted per share amounts on face of IS. Basic formula EPS = Income available to common shareholders (NI-PD) / weighted average number of common shares outstanding (WACSO) PD = preferred dividends that are declared in the period on noncumulative. if cumulative then use dividend that cumulates. WACSO = shares outstanding at beg of period. + shares sold during the period - shares reacquired during the period + stock dividends and stock spilts - reverse stock splits = WACSO
consumption vs purchase method of inventory
purchase method initially records additions to inventory as an expenditure and then establishes inventory balances and related non spendable fund balance amounts based on physical counts and valuations at year end.
basket purchase
purchase of land and building have to allocate ratio based on appriased balue
Bargain purchase gain
purchase price < FV 100% of NA
Capital project fund
purchasing department, for the construction, purcahse, or leasing of fixed assets. = unexpended capital project resources are invested and earnings are recorded in capital fund restricted rev collected Cash revenue collected in advance bond issued Cash other financing sources 200K other financing sources premium 80K Interfund transfer to debt service 80K Cash 80K Capital Lease Expenditures Other financing sources
PBO (Projected Benefit Obligation)
pv of all benefits attributed by the plans benefit formula to employee service rendered prior to that date. only uses assumption as to future compensation levels DBO = PBO under IFRS
cash + short-term marketable securities + receivable (net) / current liabilities
quick ratio
Level 1 inputs (highest priority) include
quoted prices from active markets for identical assets or liabilities.
income statement
realized gain/loss on available for sale debt securities are recorded on the
Voluntary non-exchange transactions
recognized when restrictions are met; available and measurable
Short-term lease treatment for governmental lessee/lessor (any fund)
recognizes expenditures/expense OR revenue based on payment provisions of contract (none recognized during rent-free periods)
always recognized
recognizing gain/loss in exchanges having commercial substance
Property dividend
recorded at the FMV of at declaration date as a decrease to RE
Long term debt
recorded net of costs and are amortized as interest expense over life of bond with the discount or premium
Rest of FS Notes
related party transactions subsequent events : pension, contigency loss, FV estimates, material info
risk=
relative proportion of debt to equity
Which of the following is a fundamental (primary) qualitative characteristic of useful financial information included in IASB's Framework? Comparability. Timeliness. Relevance. Understandability.
relevance
predictive value, confirmatory value, and materiality
relevance
The Fundamental qualitative characteristics of useful financial information are
relevance and faithful representation
Value of purchased intangible assets
reported at cost
Cash Flows from Financing Activities outflows=
repurchase own (treasury) stock paying back lenders payment of dividends
Statement of net assets available for benefits statement of changes in net assets available for benefits statement of accumulated plan benefits statement of changes in accumulated plan benefits
required financial statements for a defined benefit pension plan
statement of net assets available for benefits statement of changes in net assets available for benefits
required financial statements for defined contribution pension plans
statement of financial position, statement of activities, and statement of cash flows
required financial statements for not-for-profit entities
primary protection for investors against fraudulent reporting
requirement that financial statements be audited
SE- separately elected governing board L- legally separate F- fiscally independent of other governments
requirements that all have to be met to qualify as a primary government
Value of internally developed intangibles under IFRS
research costs = expensed development costs = capitalized once technological feasibility is established; only successful projects are capitalized; depreciated as R&D cost
IFRS Intangibles
research related costs to an internally developed intangible must be expensed but as asset arising from development is capitalized
How are error corrections treated?
restatement =adjust beginning balance of RE, net of tax, of earliest year presented where error occurred IFRS = impracticability exception = restate prospectively at earliest date
How to treat a change in accounting principle
retrospectively; adjust beg RE for cumulative effect, net of tax restate prior period FS (if stated) for the cumulative effect of the earliest year presented
net income / average total assets
return on assets (ROA)
Special revenue fund
rev and exp of legally restricted or committed for specific purposes other than debt and capital projects. - sales tax fund - gasoline tax fund - funds to account for specific fees - grant funds Is Rev Exp Other financing sources
full accrual
revenue is recognized when earned expenses are recognized when incurred.
Modified accrual GRASPP
revenue is recognized when measurable and available. Expenditures are generally recorded when the related fund liab is incurred. Expenditures extending over a period of time may be accounted for in period of acquisition or allocated among periods
accounting income=
revenue less expenses plus gains less losses
Conditional promises / pledge
revenue once condition is met good faith deposit = refundable advance liability
deferred tax liability
revenue or gains that are included in taxable income, after they have been included in accounting income
deferred tax asset
revenue or gains that are included in taxable income, before they are included in accounting income
Pension (and other employee benefit) Trust Funds
revenue: employer and employee contributions. employee pension plan expenses: benefit payments, refunds, adminstrative expenses. Measurement of net pension liab. Total pension liability Less Fiduciary net position = net pension liability.
Exchange transactions within NFP
revenues without DR
Impairment of Intangibles other than goodwill
review at least annually or whenever events or changes (triggering events, bad things) - Intangible asset with finite lives: step 1 - carrying amount of the asset is compared with the sum of the undiscounted cash flows Step 2 - if the carrying amount exceeds the total undiscounted future cash flows, then the asset is impaired and an impairment loss equal to the difference between the carrying amount and its FV is recorded Intangible assets with indefinite lives - one step: compare the fair value of the intangible asset to its carrying amount. if FV is less than carrying amount, an impairment loss is recognized
Requirements for interim FS from regulation S-X (10Q and 6K)
reviewed by auditor (sign-off / audit is NOT required; timeliness > reliability) BS (most recent fiscal quarter and as of end of preceding fiscal year) - 2 (quarter, and EOFY) IS (most recent fiscal quarter and period between end of preceding fiscal year and most recent fiscal quarter, and for corresponding periods of preceding fiscal year) - 3 (quarter, since EOFY, and same period for PY) SoCF (period between end of preceding fiscal year and end of most recent fiscal quarter and for cumulative corresponding period for preceding fiscal year) - 2 (period from EOFY to EOQ, and same period for PY condensed FS are allowed interim disclosures (can omit SoSAP, details of unchanged accounts, and detailed annual disclosures); required = material contingencies and subsequent events, changes in principle/estimate/entity, significant borrowings or business combinations
Cash Flows from Financing Activities inflows=
sale of (own) stock proceeds from borrowing (bonds, notes)
total asset turnover=
sales/average total assets
Leases other than short term and contracts that transfer ownership for governmental lessor (governmental fund)
same as contracts that transfer ownership (lease receivable w/ revenue for first principal payment and deferred inflow for remaining)
Leases other than short term and contracts that transfer ownership for governmental lessee (governmental fund)
same as short term lease (capital outlay expenditure and OFS)
Other retirement benefits besides a defined benefit pension plan
same treatment as defined benefit plan (ex- healthcare and insurance) EPBO >= APBO Funded status = PA - APBO = on B/S Expense = I/S Expenses are accrued during the attribution period (date fired to date where benefits are fully vested)
Health care NFP operating revenues
school tuition, donated supplied/equipment, specific purpose grants, etc.
Sale lease-back
seller becomes the lessee
Treatment of warranty
separate PO (and requires allocation of TP) if it is not required by law, long coverage period, and no specific tasks regarding compliance
component depreciation
separate depreciation of each part of an item of property, plant and equipment that is significant to total cost of FA IFRS requires this.
IFRS defined benefit expense
service cost + interest cost = all on NI
internal service fund
set up to account for goods and services provided by designated departments on a cost-reimbursement fee basis to to other departments and agencies within a single governmental unit. Customers of this fund are primarily internal
capital projects fund
set up to account for resources restricted, committed, or assigned for the acquisition or construction of major capital assets by a governmental unit, except those projects financed by an enterprise fund
Special revenue fund
set up to account for revenues from specific taxes or other sources that (by law) are restricted or committed to finance particular activities of government
enterprise fund
set up to account for the acquisition and operation of governmental facilities and services that are intended to be primarily self-supported by user charges. Customers are primarily external
Participating Preferred Stock
share equally and then pro rata
Participating Preferred Stock
shares in the remaining dividend pro ratably after C/S gets a percentage equal to the preferred dividend; can either be fully or partially participating
deferred tax asset and liability
should always be reported as non current even if it will reverse the next year
impairment loss PPE
similar to intangibles - undiscounted future net cash flows - net carrying value : negative = impairment loss recogmized FV or PV future net cash flows - net carrying value = impairment loss + cost of disposal if asset is held for disposal - reversal of impairment loss is not allowed under GAAP for assets held for use.
Blended approach
some component units are so intertwined with the primary gov they are in. a board of the component unit is substantively the same as the primary gov. or the component unit serves the primary gov exclusively. presentation: combines FS info with the primary government. FS info of the component unit is not presented in separate columns.
Operating risk
some risks and rewards (1 or 0 PC) the lessor will keep the asset on its BS. which will include depreciating it and recognizing any impairment charges if applicable. lease income will be recognized on a straight line basis, and initial direct costs will be deferred and amortized over the lease term. cash rental income depreciaiton exp acc depreciation
operating, investing, financing
statement of cash flows operating: cash receipts and disbursements from transactions reported on the IS and CA and CL excluding current notes payable and the current portion of long term debt, which are reported in the financing cash flows. OA and OL. investing: cash receipts and disbursements from non current assets financing: cash receipts and disbursements from debt and equity U.S. GAAP does not disclose cash flow per share. - reconciles the cash and cash equivalents amount presented on the beginning BS to the ending BS
a complete set of IFRS financial statements includes the following:
statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes.
FS of EBP
statements of Net assets for benefits = BS - assets statements of changes in net assets available for benefits = IS Statement of accumulated plan benefits = BS - Liab statement of changes in accumulated plan benefits = liability shanges
difference between carrying value and the fair value (or recoverable amount if IFRS, PV future cash flows if PP&E)
step 2 of the impairment test
capitalized amount x 1 / estimate of economic life
straight line method for capitalizing development costs
cost - salvage value/ useful life
straight-line depreciation =
Income attributable to NCI
sub NI * nci%
Liquidity Ratios (also known as Solvency Ratios) Measure:
the ability of the firm to pay its obligations as they become due
Accumulated Benefit Obligation (ABO)
the actuarial present value of benefits attributed by a formula based on current and past compensation levels. uses current salaries
interest expense - interest payment
the amortization of a discount using the effective interest method on bonds =
interest payment - interest expense
the amortization of a premium using the effective interest method on bonds =
Current value represents
the amount at which a buyer and seller would be willing to exchange the item
T Determine the transaction price
the amount that is expected to be collected. can factor in a bonus or discount, etc. - time value of money if more than one year.
for officers compensation expense adjusted balance=
the balance + all adjustments (bonuses + salaries accrued)
what is form S-1?
the basic registration form for new securities and it includes a list of required disclosures. The financial information includes a balance sheet dated within 90 days of the filing.
Other than generally accepted accounting principles, the only other bases which may be used to prepare financial statements in conformity with OCBOA are:
the cash basis and a basis of accounting used to file an income tax return.
investing activities
the change in all noncurrent assets - if the change goes up, we buy and cash goes down
Realization implies
the completion of a transaction and the receipt of liquid assets Requires reporting in the accounts
unrecognized gain/loss less: 10% of PBO or market related value (whichever is greater) / average remaining service life = amortization of unrecognized gain/loss
the corridor approach formula to finding the net unrecognized gain or loss
writing off obsolete inventory decreases
the current ratio
Discrete approach
the default method. displays component units in separate columns.
n(n+1)/2
the denominator in the sum of the years digits depreciation method =
SEC's regulation S‐X describes
the form and content of financial statements to be filed with the SEC.
Regulation of S-K governs
the form and content of nonfinancial statement disclosures. These disclosures are the content of the 10-K outside of the financial statements (remember that "S-K" governs the "10-K" nonfinancial statement content) ex: description of the business -- Description of stockholder matters; --Management's discussion and analysis (MD&A); --Changes in and disagreements with accountants; and --Information on directors and management.
Propsective refers to:
the future
when a nonmonetary exchange lacks commercial substance
the general rule is that no gain or loss is recognized and the book value approach is used.
Valuation techniques for fair value that include the Black‐Scholes‐Merton formula, a binomial model, or discounted cash flows are examples of
the income approach
cash flow from operating
the interest payments on a finance lease are classified as what on the cash flow statement
if none of the above are met than
the lease is considered short term. it is an operating lease. for the lessor if none above are met than the classification will depend. P present value of the sum of the lease payments, lessee guaranteed residual value not included in the lease payments, and any third party guaranteed residual value is equal to or substantially exceeds the underlying assets FV C collection of the lease payments and any amounts necessary to satisfy residual value guarantees is probable. - if both yes = direct financing - one or none = operating
finance lease
the lessee will recognize both an ROU asset and a corresponding liab on its BS. the liab will equal the PV of the lease payments. (same as operating). the ROU asset will include initial direct costs. two expenses on IS tho. ROU asset lease liab. sub entrires Int exp lease liab cash/lease payable amort exp acc amort/ROU asset
The principal market is
the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability.
The account is a contra if
the market value is less than original cost,
The account is an adjunct if
the market value is more than original cost
According to the conceptual framework, the objectives of financial reporting for business enterprises are based on:
the needs of the user of the information
operating cycle of a firm is
the period of time required to purchase or produce inventory, sell the inventory, and collect cash from the resulting receivables
additional paid in capital
the portion of the cash proceeds above par value can also come from sale of treasury stock at a gain, liquidating div, conversion of bonds, small stock div. - dividends have to be paid out of RE but some states allow you to pay it out of APIC
what is an entry price?
the price paid to acquire the asset or the price received to assume the liability (the "transaction price"), When an asset is acquired or a liability is assumed in an actual transaction
composite or group depreciation
the process of averaging the economic lives of a number of property units and depreciating the entire class of assets over a single life - when an individual asset is sold or retired than we do not record it on the IS, it is absorbed
confirmatory value refers to
the usefulness of information for determining the accuracy of a prediction, and also for modifying a prediction model
Investments are usually considered cash equivalents only when
their original maturity is three months or less (e.g., treasury bills, money market funds)
Upon adoption of IFRS the first set of statements must include
three statements of financial position, two statements of comprehensive income, two separate income statements (if presented), two statements of cash flows and two statements of changes in equity. If filing with the SEC, three years of flow statements are required.
income before interest expense and income taxes / interest expense
times interest earned
How must IFRS revaluation model be applied
to an entire asset class
what is the primary objective of financial reporting
to provide information that is useful for economic decision making
Calculation for weighted average cost per unit
total COGS available for sale / # units available for sale
market price at grant date - market price at exercise date x number of stock rights outstanding
total compensation expense for stock appreciation rights =
total liabilities / total assets
total debt ratio
Patient revenue calculations for health care NFP
total patient revenue - charity care = gross patient revenue gross patient revenue - deductions (contractual adjustments, policy discounts, admin adjustments and bad debt for amounts billed before collection assessment) = net patient revenue provision for bad debts is NOT a deduction (when it is established after evaluation of ability to pay)
Determining the CV of a bond with a detachable warrant
total proceeds - FV of stand alone warrant = CV of bond (determine imputed interest rate and interest expense from CV)
Calculation of deferred ITE
total temporary difference * enacted rates = ending balance Compare beginning balance in DTA/L account to determine change and thus deferred ITE for year
Categories of debt securities and where G/L go
trading securities - valued at FV; all G/L to NI available for sale securities - valued at FV; unrealized G/L to OCI; realized G/L to NI (will reclassify unrealized G/L from OCI) held-to-maturity (ability and intent to hold) - valued at amortized cost; no unrealized or realized gains
budgetary acctg
used for GRASPP funds based on estimated revenues and appropriations. Revenue sources: - Taxes, income and sales - taxes, property and real estate - fines and penalties Other financing sources - debt proceeds - interfund transfers the estimated/budgetary amounts are recorded as opposite dr/cr Beginning of year JE Estimated rev control Appropriations control (approved spending) budgetary control (positive/surplus) budgetary control (negative/deficit) End of year reverse beginning of year entry
private purpose trust funds
used for activities not properly accounted for either as pension or investment trust funds, in which assets are dedicated to providing benefits to recipients in accordance with benefit terms and assets are legally protected from creditors of the government
budgetary
used to control spending
encumbrance
used to record purchase orders and is designed to monitor spending for increased budgetary control
permanent fund
used to report resources that are legally restricted to the extent income, and not principal, may be used for purposes supporting the reporting government's programs
Compensatory stock options
valued at FV of option on grant date; entire FV / service period = yearly compensation expense (booked to APIC - stock options) At exercise: APIC- stock options is removed and C/S with plug to APIC - C/S is recorded At lapse: reclassify the lapsed options to APIC - lapsed options
Current cost accounting is a method of
valuing and reporting assets, liabilities, revenues, and expenses at their current cost at the balance sheet date or at the date of their use or sale.
total costs of available inventory / total number of available inventory
weighted average method =
comparability, verifiability, timeliness, understandability
what are the enhancing qualitative characteristics
change to LIFO and change in depreciation method
what changes in accounting principle are accounted for as a change in estimate? (prospectively)
par value
what is retained earnings reduced (debited) by in a large stock dividend (more than 20-25%)
fair market value
what is retained earnings reduced (debited) by in a small stock dividend (less than 20-25%)
annual report of company's employee benefit plans
what is the form 11-K?
semiannual report by foreign private issuers
what is the form 6-K?
filed to report major events
what is the form 8-K?
enacted rate (or tax rate in effect)
what rate do you use for deferred taxes
transactions from non-current liabilities, debt, and equity
what transactions are reported in financing cash flows
transactions from non-current assets
what transactions are reported in investing cash flows
transactions reported on the income statement and current assets and current liabilities
what transactions are reported in operating cash flows
fiduciary funds
what type of fund are not included in government-wide financial statements
imputing interest
when a not contains either no interest or an unreasonable rate, the substance rather than the form of the transaction must be recorded. ST = imputing interest not required
deferred tax asset (pay taxes early)
when accounting income > future tax income
Bill-and-Hold Arrangements
when an entity bills a customer for a product that has not yet been delivered to the customer. REV can not be recognized until the customer obtains control of the product. All must be met - - a substantive reason for the arrangement (customer requested) - product is separately identified as belonging to customer - product is currently ready for transfer to Custome - entity cannot use the product or direct it to another customer
no gain is recognized unless it's 25% or more than total consideration
when cash is paid in an exchange lacking commercial substance...
recognize proportional gain or entire gain if it is 25% or more than total consideration
when cash is received in an exchange lacking commercial substance...
Deferred tax liability (pay taxes later)
when future tax income > future accounting income
cost of goods sold
when inventory is sold to outsiders, what do you reverse to correct the accounts
ending inventory
when inventory is still on hand, what do you reverse to correct the accounts
Reissuance
when is gain/loss calculated for treasury stock using the cost method
repurchase
when is gain/loss on treasury stock calculated using the legal method
when is info relevant?
when it makes a difference to decision makers in their role as capital providers
Consolidated financial statements
when more than 50% of the voting stock has been acquired, these must be created
no gain is recognized
when no cash is received in an exchange lacking commercial substance...
Equity method
when ownership is 20-50% (or has the ability to exercise significant influence), what method is used
the income statement (in earnings)
when reporting gains/losses on derivative instruments, when there is no hedging designation then they should be recognized in...
Consignment
when the dealer or distributor has not obtained control of the product. Rev. is Rec. when the dealer or distributor sells the product to a customer or when they obtain control over the product. indicators of consignment -- - entity controls the product until a specified event occurs - dealer does not have an unconditional obligation to pay the entity for the product - entity can require the return of the product or transfer it to another party
when does info faithfully represent?
when the reported measure and the condition or situation are in agreement
financing arrangment
when the repurchase price is equal to or greater than the original sale price and the expected market value
Income statement
where are impairments on fixed assets reported?
OCI
where are revaluation gains on fixed assets under IFRS reported?
Income statement
where are revaluation losses on fixed assets using IFRS reported?
cash flow from investing
where is available for sale debt securities recorded on the cash flow statement
cash flow from operations
where is debt trading securities shown on the cash flow statement
income from continuing operations
where is impairment loss reported
reported separately as part of income from continuing operations
where should items that are unusual and/or infrequent be reported?
governmental fund
which type of fund only focuses on current financial resources (no FA and no LTD)
when converting from cash to accrual basis:
Δcash = - ΔL - ΔE + Δother assets subtract change in liabilities (unearned service revenue) & equity add change in other assets (accounts receivable; accrued expense; prepaid expenses)
when converting from accrual to cash basis:
Δcash = ΔL + ΔE - Δother assets add change in liabilities (unearned service revenue) & equity subtract change in other assets (accounts receivable; accrued expense; prepaid expenses)